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What is Negative Growth?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 09 November 2016
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Negative growth is a term that is used to describe a reduction in the economic circumstances of a business, industry, or even the economy of a nation. The term indicates that for the period of time under consideration, there has been a drop in economic growth that serves as an indicator of a shift that is either already underway or is anticipated to commence in a short period of time. In terms of negative growth for a national economy, this phenomenon is often identified by a decrease in the gross domestic product or GDP for a given quarter or semiannual period of time that is followed by additional decreases in the next period or periods under consideration.

When many people think of negative growth, the first impulse is to assume that the economy is about to go into a period of depression. This is only one possibility. Depending on the underlying reasons for the reversal in growth, the economy could be heading into a period of recession rather than depression. Only by carefully examining the causes for the shift in the growth pattern is it possible to determine which direction the economy is likely to move, and what this will mean for consumers, investors, and businesses.

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For governments, identifying the reasons for negative growth is essential to the task of attempting to minimize the impact of an upcoming economic situation. It is not uncommon for a national government to make use of its national or federal banking system to initiate changes in interest rates or otherwise control the flow of money as a means of easing what would otherwise be a much worse economic period. In like manner, a government may implement temporary changes in laws or regulations that are also aimed at helping to reverse the unfavorable economic trend, and begin to slow the progress of the negative growth. If successful, the growth pattern will reverse over time and eventually the nation will enjoy positive economic growth once more.

To a lesser extent, negative growth is also sometimes used to describe a situation that is developing in a given industry, or even with a specific company with an industry. Often, the term in these settings refers to situations where revenues from sales decrease to the point that they can no longer sustain the operation of the company. When this occurs, steps must be taken to stimulate sales, as well as trim expenses in the interim. When successful, efforts of this type can help a company move out of a period of negative growth and into one where the growth pattern is positive again.

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serenesurface
Post 2

It's hard to know what negative growth is going to lead to. I think that if a country or a company is experiencing negative growth, it should take action right away to stimulate the economy. I'm not saying that if they don't, everything will go downhill. It might or it might not, but it's always best to take precaution.

The reason for this is that it can have a bad impact on other factors that affect the economy. Retail sales are a good example. If there is a negative growth and spending power decreases, either because of higher prices for goods or lower income or both, that can cause people to buy less. It might even become a habit

, people might assume that the economy will never get better and sales can stay down, which will make the economy even worse. (Remember President Bush telling Americans to keep shopping couple of years ago?)

So we really don't know what's going to happen, what is going to be affected and how the public is going to react. That's why negative growth is like a warning sign. We don't need to be scared of it, but we need to do something to make it better!

burcinc
Post 1

Right, negative growth doesn't mean that we are in a depression. I understand it as the economy shrinking or growth being less than what it could be. So it's the difference between where we are now and what our potential is.

I know it doesn't make a lot of sense at first glance. I always wondered how it can be "growth" and yet "negative" at the same time. But then I heard an economist talk about it and it made more sense. His explanation was something along the lines of not utilizing our potential when we are in negative growth. So there are all these resources in the country- labor and capital- that is not being used, it is wasted. This affects inflation, currency rates and so many other things.

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