Gross Domestic Product – Forex economic indicator

Gross Domestic Product Definition

The release of economic data is important to a Forex trader, the timing as well as the data which is released greatly influences the choices that they make in the course of their trading. The Forex economic indicators usually create volatility, speculation as well as hope for those who are involved in the trade. Gross Domestic Product (GDP) is one of the indicators that a Forex trader looks into in order to make sound decision. It simply means all the total market value of the goods and services which are produced within a given country in a certain period. For example in United States, the amount can be broken down into the following categories, that is, government expenditures, net exports, investment and consumption. When you talk of consumption, this is the amount of money that is spent at the household level; it includes such expenditures as in basic needs and other personal spending. The other category of GDP is the investment; this is the amount that is spent by business in buying things that help in the production of goods and services. These business expenditures include spending on the new equipment and plants. Also people at the house hold level may spend some money in acquiring property or other things which help them in production of goods and services. Gross Domestic Product also includes all the total government expenditure; these can be amounts which the government uses to pay its employees as well as in support of its programs and activities. The government is also involved in investment; this element must also be included when calculating the total wealth. The final element involves all the goods and services which are exported from a country, the figure which is obtained here should be less the total imports to a given country.
The figures which are obtained after considering all these elements can be compared with the previous year’s performance in order to establish the growth of the GDP.A rise in the figure will indicate a growth while a drop signifies a decline in a country economy.
GDP figures are usually released within certain period, this again depends on the country and the economic indicators calendar, there are some which give the report on a monthly basis while others do it every quarter. For example in United States the body which is charged with the role of releasing the report gives a quarterly GDP report.
Just like other Forex economic indicators, GDP has a lot of weight and impact on foreign exchange currency exchange. It serves as an indication that the economy is growing while at the same time showing an economy which is signalling contraction or withering down. Forex traders are interested in higher rates of growth; through this, the interest rates are likely to follow the same trend. When an economy is experiencing an upsurge, the benefits which are derived out of this situation trickle down to the consumers through increasing their spending and investment capacity. As a result of this, the prices may tend to rise forcing the central bank to intervene through taming where they increase the lending rates.
A GDP which shows a decrease, signify an unhealthy economy which is mostly followed by a fall in the currency rate, on the other hand a growth in GDP normally drives up the rates of the local currency.