China Economy and Trade
What Is It?
Savings is that portion of an individual’s income that is not spent or of a company’s income that is not spent or given to investors as dividends.
Gross Domestic Product (GDP) is the total value of the goods and services that are produced within a country's borders by citizens and non-citizens in a fiscal year.
Gross domestic savings as a percentage of GDP is the ratio of a country’s savings (how much it doesn’t spend) compared to its gross domestic product, (essentially, how much it earns).
How Is It Calculated?
Country gross savings is the sum of total individual income minus expenditures plus total business income minus expenditures and dividends.
Gross Domestic Product (GDP) is calculated using one of three methods:
- Production Method: The sum of all value added to each stage of production of all goods and services.
- Income Method: The sum of all wages, profits, interest, and rents.
- Expenditure Method: The sum of the purchase values of all goods and services.
There will be slight variances when comparing these three methods, but they produce fundamentally the same result.
Gross domestic savings as a percentage of GDP is the ratio of a country’s savings (how much it doesn’t spend) compared to its gross domestic product, (essentially, how much it earns).
What Does It Mean?
A country's gross savings is an indicator of a nation's economic health.
- A high individual savings rate helps individuals weather economic fluctuations, increases financial freedom, helps finance retirement, opens investment opportunities, assists with financing home purchase, and acts as a cushion against job loss.
- A high business savings rate helps businesses weather economic fluctuations, opens investment opportunities, and lowers interest costs.
- A negative savings rate indicates that the economy as a whole (individuals and businesses) is spending more than it is earning.
Note that a high inflation rate is a disincentive to savings.
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