Monday, 17 October 2016

The Nominal GDP should increase

We have for some time been in a time of continuing terms of trade.
This lead to nominal GDP falling and continuing to be weak.
This lead to people feeling negative about the economy as well as having adverse impact on the budget because of the revenue implications.This originally started with the last ALP government!
now the worm has turned and most people are expecting the terms of trade to increase. If commodity prices are maintained at present levels nominal GDP could increase by between 2-3%.
This will lift living standards and  confidence.

Peter Martin has got most of it right as per usual. A caveat should be put in. When commodity prices rose after the GFC it had little consequences on revenue for the government and this perplexed Treasury as it continued to write about possible reasons why revenue had not risen as commodity prices rose.

Hopefully most people will learn the lesson that we live in the nominal economy not the real economy.