Econ Grapher

Growth

What is Growth?
Growth in an economic sense is usually concerned with economic growth or GDP growth. This "growth" is basically a percentage change. For example if GDP is 100 in period 1 and 105 in period 2, the 'growth' rate is 5%. Growth is an important concept due to its relevance to almost everyone. When an economy is growing, jobs tend to be created, incomes tend to rise, and markets tend to do well. The opposite of growth is contraction, which if persistent is generally referred to as recession, or even depression in the worst case. In a business sense growth can refer to growth in sales or revenue, or earnings, or even assets, etc. Growth also needs to be looked at in the context of previous metrics and looked at on e.g. a chart so that it can be assessed whether there is real growth - e.g. it may mean different things if the metric has fallen a lot and then increased a little bit. 

How does it relate to Markets?
Economic growth is of vital importance to financial markets; particularly stock markets - where companies earnings will tend to rise higher during economic boom times, and valuation multiples will also generally be higher. Growth in the company sense is also obviously important for earnings growth, and plays an important role in valuations e.g. the terminal growth rate, forecasts, and discount rates. But of course too much growth can actually be a problem; if it starts lifting inflation and inflation expectations, and at the extreme; if it leads to asset bubbles - which can lead to excesses and lapses of discipline and management standards which can lead to large scale and damaging collapses.

Sources and further reading:
Library of Economics and Liberty - Economic Growth
Encyclopedia Britannica - Economic Growth
Foundation for economic growth
Investopedia on economic growth
World Growth Institute

Graph Library:
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Original Source: http://www.econgrapher.com/encyclopedia-growth.html

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