7 Economic Growth Indicators and their Characteristics

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Philip Kelley
7 Economic Growth Indicators and their Characteristics

The economic growth indicators are data used by analysts to interpret and evaluate the health of a country's economy to make possible investments in it. The idea is to make an evaluation combining the signals provided by each of them, thus expanding the pattern of observation and verification of the data..

A correct interpretation is key to obtain maximum usefulness from the information they provide. The vast majority of these indicators have a timetable for their publication; this allows investors to take their forecasts and plan their actions.

Indicators of economic growth have far-reaching implications for all market sectors; the financial sector is one of the most sensitive. Investors often observe them and regard them as a sign of prosperity or a potential problem for the country..

Article index

  • 1 Main indicators of economic growth and their characteristics
    • 1.1 Gross Domestic Product (GDP)
    • 1.2 Gross National Product (GNP)
    • 1.3 Inflation
    • 1.4 Unemployment rate
    • 1.5 National Consumer Price Index (INPC)
    • 1.6 Balance of Payments (BDP)
    • 1.7 Country risk
  • 2 References

Main indicators of economic growth and their characteristics

Gross Domestic Product (GDP)

It is the market value of all the goods and services generated within the same country, which were produced by individuals, companies or the government in a specific period of time, which is usually one year..

GDP includes private and public consumption, government outlays, investments, private inventories, construction costs paid, and the foreign trade balance..

The data it offers is used as indicators of production and the standard of living in the country, allowing those in charge of financial policies to measure the growth or decline of the economy, judge whether it is necessary to boost or restrict it, or take action against it. possible threats of recession or inflation.

Gross National Product (GNP)

It is an economic statistic that reflects the total value of the final goods and services generated by the production factors of a nation, being these inside or outside the country, in a given period of time..

GNP is calculated by the sum of personal consumption expenditures, private domestic investment, government spending, net exports, and any income obtained by residents, referring to their investments located abroad..

Here the income earned within the national economy by those citizens who are foreign residents is not considered..

The Gross National Product offers valuable general information, referring to the production that has been obtained in the economic sectors of a country (agriculture, services, industry), thus allowing the evaluation of the entire economic performance of the country..

Inflation

It is the sustained increase in the price level of goods and services in an economy over a period of time. This reflects a reduction in purchasing power per unit of money; in addition, it reflects a loss of real value in the exchange market within the economy.

Unbridled growth in the money supply results in high inflation rates, in addition to hyperinflation. These affect the economy of a nation negatively and positively.

The negative effects include the decrease in the real value of the currency, the discouragement of investment or saving, and the shortage of goods, motivated by impulsive purchases due to a possible increase in the prices of products..

A positive effect is the option that the country's central banks will have to adjust nominal interest rates, with the intention of stabilizing the economy, thereby mitigating the economic recession and unemployment..

Unemployment rate

Represents the workforce that does not have a job, expressed as a percentage. The unemployment rate is calculated by dividing the number of unemployed that a country has by its economically active population.

This figure is one of the most relevant economic indicators, since it directly reflects the well-being of families. In addition, if its value is far from the contemplated expectations, it is among the variables that have the greatest influence on market behavior..

A country's unemployment levels can set off red flags about possible macroeconomic imbalances

National Consumer Price Index (INPC)

It is a statistical information that assesses the average change that the prices of certain goods and services for family consumption undergo, in a specific time, with reference to their current costs

The data are collected through recurring surveys that are carried out among household members in certain regions of a country. The sample must be chosen randomly, which will give the instrument a representative and reliable character..

The information can be compared, temporally or spatially, with the indices of other periods or those obtained in foreign countries. These data are used as inflation indicators and as a basis for estimating the cost of living..

Balance of Payments (BDP)

It is a statement referring to all monetary transactions carried out during a specific period between a nation and the rest of the countries of the world..

It is made up of imports and exports of goods, services and capital, including payments of foreign aid or remittances..

The balance of payments of a country and its net international investment position make up the so-called international accounts.

In theory, the BOP should be equal to zero, since each exchange between the sectors is accounted for as an asset (credit) or a liability (debit), therefore these must be balanced.

A discrepancy in the balance can mean a deficit or a surplus. This aspect is relevant when evaluating the economic health of a nation.

Risk country

This indicator refers to the risk of investing in a nation. It is directly associated with possible changes in the business environment that could negatively affect operating profits or the value of assets in the country.

Risk analysis providers use different methodologies to assess and rate country risk exposures. Among these are quantitative econometric models, focused on the financial aspect; and the qualitative ones, referring to political analysis.

Investors can protect themselves against some risks, such as the exchange rate, by hedging the product; but on other risks, such as political instability, they do not have an effective way to protect their investment.

This is why a deep and detailed analysis of the country's debt is used. Also of their political, economic and social status, so that, based on these results, transcendent economic decisions are made..

References

  1. Roger Wohlner (2018). Economic Indicators: Gross Domestic Product (GDP). Taken from: Investopedia.com.
  2. Investopedia (2018). Economic indicators. Taken from: investopedia.com.
  3. Wikipedia (2018). Gross national product. Taken from: en.wikipedia.org.
  4. How the market works (2013). Gross National Product. Taken from: education.howthemarketworks.com.
  5. Focus Economics (2018). What is the Unemployment Rate? Taken from: focus-economics.com.
  6. Kimberly Amadeo (2018). Balance of Payments, Its Components, and Deficit versus Surplus. Three Ways a Country Pays for Its Growth. The balance. Taken from: thebalance.com.

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