Economic indicators are statistics about the performance of a country’s economy. These indicators are used in the analysis of economic performance and are vital in the predictions of future development performance of countries. Economic indicators are vital tools in studying business cycles (Clark 26). Economists have used economic indicators to compare development levels of different countries by calculating how productive they are using their capital.
However, there can be challenges in putting values on elements of natural and human capital. In practice, economists have employed the use of GDP, economic growth, and inflation rates for the same purpose. In this study, we analyze how economic indicators are used in comparing the economic situation between the UAE and UK. These statistical indicators are easier to calculate a rough measure of the relative productivity with which different nations use their resources and provide a measure on the relative material welfare in different countries (Clark 25). This is vital in ascertaining whether the welfare results from good fortune with respect to land and other natural resources or superior productivity in their use.
Comparing the GDP for UAE and UK
According to International Monetary Fund report (6), GDP calculations have been used by many organizations to group countries by their levels of development. Thus, countries may be grouped as low-income, middle income, lower middle income, upper middle income, or high income. GDP is obtained as the value of the total output of all goods and services produced in a country in a single year within its boundaries. GDP at constant prices is the volume level of GDP obtained by expressing the values in terms of a base period.
This is calculated by quantity revaluation based on a methodology consistent with the price and quantity components of a value identified and the price in the base period substituted for that in the current period. Furthermore, it can also be calculated by a method of price deflation that involves dividing the price indexes into observed values to get the volume estimate. The UAE is a free economy with a high per capita income and significant trade surplus. UAE has achieved successful efforts at economic diversification from the outputs of hydrocarbons. Due to the discovery of oil gas in the country more than 30 years ago, UAE has undergone profound transformation from an impoverished region of a small desert to a modernized state with high standards of living. In the year 2010, the GDP of UAE was estimated at 3.2%, the real growth rate. In 2009, it stood at -3.2%, and 5.3% in the year 2008. This particular entry gives the GDP growth on an annual basis adjusted for inflation and expressed as percent (Butler 2).
Table 1: GDP at constant prices of the UAE from 2000-2009/10.
Source: International Monetary Fund – 2011 World Economic Outlook.
The GDP of the United Kingdom is one of the world’s most developed economies. It incorporates services such as banking, insurance and business services that accounts for the largest part of the GDP whereas industry continues to decline in its relative economic importance. Due to this, the government has made plans to reduce public ownership, but contained the growth of social welfare programs. Compared to the GDP of UAE, the GDP real growth rate of UK stood at 1.3% in the year 2010, – 4.9% in the year 2009, and – 0.1% in the year 2008. This entry gives GDP growth on an annual basis adjusted for inflation and expressed at the present terms (CIA World Fact book).
Table 2: GDP at constant prices of the UK from 2000-2009/10.
Source: International Monetary Fund – 2011 World Economic Outlook
Composition of the GDP in the two countries vary, for instance in the UAE the government made major increases in the expenses on job creation and in the expansion of infrastructure and has decided to open up more utilities for increased private sector involvement. The economy of UAE has remained majorly dependent on oil and natural gas (Chatterji 25). The income that the government derives from the natural resources, particularly oil exports has been used in financing other infrastructure and the non-oil economy. In the current years, there has been a decline in the oil sector as a percentage of the nation’s GDP. However, economists have forecasted that in the financial year 2011, the oil sector will comprise of less that 10% in the total annual increase in the size of the nation’s economy which is expected to increase at an estimated value of 7% (Chatterji 26).
Other investments in the manufacturing and the energy sectors will put the oil sector, assisted by the exports to be more competitive, hence will have a chance to weaken the US currency. In addition, the service sector is projected to increase in strength. UAE’s free trade zones offers 100% ownership and provides zero taxes, hence assists in boosting the tourism sector. However, due to the global financial crisis coupled with tight international credit, and the increased deflation rates on the prices of assets, there has been a decline in the GDP growth in 2010.
The government has tried to improve following the crisis through increasing expenditure and making major improvements to boost liquidity in the banking sector. Due to this occurrence, Dubai was hardly hit due to its exposure to depressed real estate (Dow 303). Dubai was greatly hit by this occurrence due to lack of sufficient funds to meet the debt obligations, this led to a global concern concerning its solvency. The central bank in UAE, as well as, other banks based in Abu Dhabi obtained the largest shares. For instance in 2009, Dubai obtained more loan in 2009 from the emirate in Abu Dhabi.
It is expected that the economy in UAE will continue to grow but at a slow rebound. The regions dependence on oil and a large number of expatriate employees, as well as, the growing inflation rates in UAE presents significant long-term challenges. EAU has made strategic plans that are focusing on creating a lot of diversification and more employment opportunities to increase on literacy levels through boosting education and increasing private sector employment.
According to Dow, there exists a leading trading power and financial center in UK, this country is the third largest economy in Europe following Germany and France (303). There has been a tremendous reduction on public ownership, which has greatly enhanced the growth of social welfare programs. Agrarian economy is well developed, hence, due to the intensification in agriculture, which is highly mechanized, and highly efficient according to the European set standards, it has been able to produce over 60% of food production with less than 3% of the labor force (Chatterji, 2009). In UK, there is large supply of coal, natural gas and other hydrocarbon resources.
However, the oil and natural gas have faced a lot of deterioration in UK, hence, making the nation to be a larger importer of energy, particularly in the year 2005. Other sectors such as banking, insurance and business sector accounts for a larger portion of the GDP. However, the industrial sector has continued to decline in importance over the last decade. Following the period of recession in 1992, UK enjoyed a longer period of economic expansion, during which period the growth rate was higher that other regions in Western Europe (Mason 4).
The global financial crisis that occurred in 2008 greatly hit the economy due to the importance that it attached to the financial sector. This affected home prices, increased consumer debt, pushing back the economy into recession particularly in the better half of 2008. The government decided to implement a number of measures to stimulate the economy, and ensure stabilization of the financial markets. Some of the measure included nationalizing some parts of the banking system, reducing taxes, and putting a halt to the public sector borrowing regulations. This idea led to channeling public spending on other sectors such as capital projects. Due to the increasing public deficits and higher debt levels, the government decided to initiate a five-year program to lower the budget deficit less than 10% of the GDP in 2010 to about 1% by 2015. This move made banks to coordinate interest rates with the European central bank.However, UK was not incorporated within the economic and monetary union.
Calculating the Per Capita REAL GDP of the two countries
In order to calculate the GDP of UAE, we will take an example of the year 2003 in which the GDP was US$87.6 billion, in 2004, there was a real growth rate of 7.8%. This is driven by a 10% in non-oil GDP. The GDP can be calculated as the 2004 real GDP growth rate at 7.4%. The per capita GDP FOR 2004 is higher compared to other countries in than Arab nations, which are almost $24,000.
In 2005/2006, the real GDP was stronger due to the higher oil earnings and was sustained by other earning in the non-oil sectors. Thus, the real GDP grew at 6.7% in 2005 exceeding $ 118 billion (International Monetary Fund 55).
On the other hand, in calculating the GDP of UK in the same period, there was a GDP per capita of US$ 34,740. When this is divided by 75.9% taking into account the population in employment, it is expected that each employee is to produce US$ 46,381. For example, if we consider Belgium with a much lower employment rate, then the calculation of the GDP is derived as follows, 31,244 / 61.1 x 100 = US$ 51,135.This implies that the productivity per worker is higher.
Conclusion
The UAE is a very wealthy country, mainly due to its modest population base and huge oil resources. The large budget surpluses achieved have enabled the UAE to accumulate a sizeable current account balance, held mainly by the governments of the individual emirates and partly by other private establishments. Progress has been favorable in social and economic development. The successful implementation of human development policy in the UAE, hand in hand with industrialization, urbanization and modernization, is one of the rare examples of a country that has successfully used income from its huge natural resources for its long-term development over a very short period.
Works Cited
Butler, Rhett. United Arabs Emirates: Economy. 2010. Web.
Chatterji, Morris. Training Subsidies, Technical Progress and Economic Growth. University of Leicester, 2009. Print.
Clark, Colin. Development Economics: The Early Years’, in G.M. Meier and Dudley Seers (eds). Pioneers in Development. New York: Oxford University Press, 2005. Print.
Dow, Christopher. Major recessions: Britain and the world, 1920-1995. Oxford: Oxford University Press, 2000. Print.
International Monetary Fund. World Economic Outlook: Rebalancing Growth. Washington, D.C: International Monetary Fund, 2011. Print.
Mason, Barry. Britain: Income inequality at record high. International Committee of the Fourth International, 2009. Web.