Negative growth is a contraction in business sales or earnings and is also used to refer to a contraction in a country’s economy, which is reflected in a decrease in its gross domestic product (GDP) during any quarter of a given year. Negative growth is typically expressed as a negative percentage rate.
Key Takeaways
- Negative growth indicates a decline in a company’s sales or earnings, or a decrease in an economy’s GDP during any quarter.
- Declining wage growth and a contraction of the money supply are characteristics of negative growth, heralding potential economic challenges such as recession or depression.
- Significant instances like the 2020 COVID-19 pandemic and the Great Recession of 2008 highlight periods when the U.S. economy faced considerable negative growth.
Insights on Negative Growth
Growth is a crucial metric in assessing a company’s performance. Positive growth indicates improvement with likely higher earnings, hence higher share prices. Conversely, negative growth reflects a decline in sales and earnings.
Economists use growth metrics to evaluate the state and performance of the economy by measuring GDP, which is computed considering factors like private consumption, gross investment, government spending, and net exports. Positive economic growth denotes prosperity characterized by an increase in money supply, economic output, and productivity, while negative economic growth implies declining wage growth and a contraction in money supply, a harbinger of economic downturns such as a recession or depression.
Negative Growth and the Economy
Repeated intervals of negative growth are key indicators used to ascertain if an economy is experiencing a recession or depression. The Great Recession of 2008 serves as a prime example where the economy experienced more than two years of negative growth.
The Great Recession began in 2008 and carried on into 2010, with GDP growth rates plunging to -0.1% in 2008 and further to -2.5% in 2009 before rebounding to a positive 2.6% in 2010. Although the announcement of negative growth can instill fear among investors and consumers, it is just one of many factors contributing to a recession or depression.
Negative growth rates and accompanying economic contraction are typically marked by a decrease in real income, higher unemployment, reduced industrial production, and a dip in wholesale or retail sales. However, effectively gauging the existing economic condition can be complex, as situations manifest differently. For instance, during periods of negative growth, if the real value of wages increases, consumers might perceive the economy as stable or improving. Conversely, in times of positive GDP growth co-existing with high inflation rates, the public might feel the economic stagnation or decline.
Related Terms: recession, economic depression, GDP decline, business contraction, money supply, inflation.
