GDP measures the monetary value of all the goods and services produced in a nation or state. The statistic is a key indicator of economic health and is closely watched by investors, business leaders, and policymakers. The advance release of GDP data can have a big impact on markets.
Consumer spending, investment, and exports make up the vast majority of GDP. Growth in these areas can be influenced by a host of factors, including unemployment rates, household wealth, and the confidence level of consumers. When the economy is growing, consumers tend to spend more and save less. In turn, this can boost a country’s GDP.
Investment in businesses is also a crucial part of GDP. When companies invest in new equipment, it can increase productivity and lead to higher levels of employment. However, this can also be affected by a range of factors, such as the confidence level of businesses and the availability of financing.
Another factor that can affect GDP is inflation. When prices rise faster than the rate of production, the real value of output declines. Economists use a process called rescaling to adjust the data for inflation and arrive at a true measurement of a nation’s economic output.
GDP is usually reported in a nation’s currency. To compare a nation’s GDP with that of another, it’s necessary to convert to a common currency. This can be done using market exchange rates or purchasing power parity, or PPP, exchange rates.