Forex News Fundamentals / Highly Affecting Economic Market Data
After in the previous three posts we discussed the importance of paying attention to employment data, we now discuss other important economic data that is the economic growth side of a country.
Gross Domestic Product (Growth Domestic Product)
The economic growth of a country is represented by data of Gross Domestic Product (GDP) or Growth Domestic Product (GDP). This data is quite important because it is one of the benchmarks of a country’s economic success in the face of global competition.
In Indonesia, this data is reported by the Central Bureau of Statistics (BPS), if released in the US by the Department of Commerce and released every three months or every quarter ends and in the next month the data will be released. In the economic field, GDP is the market value of all goods and services produced by a country in a given period. GDP is one method of calculating national income.
GDP is defined as the overall value of all goods and services produced within the territory within a certain period of time (usually per year). GDP differs from GNP or Growth National Product (GNP) because it incorporates the income of factors of production from abroad working in that country.
So the GDP only calculates the total production of a country regardless of whether the production is made by using domestic factors of production or not. In contrast, GNP takes note of the origin of the factors of production used.
Nominal GDP refers to the value of GDP without regard to the influence of prices. While real GDP, or GDP at Constant Prices, corrects the nominal GDP by including the influence of the price.
GDP can be calculated using two approaches, namely the expenditure approach and income approach. The general formula for GDP with an expenditure approach is:
GDP = consumption + investment + government expenditure + (export – import)
Where consumption is household expenditure, investment by business sector, government spending by government, and exports and imports involves the foreign sector.
While the income approach calculates the income received by the factors of production, by the formula:
GDP = rent + wages + interest + profit
Where rent is the income of owners of fixed factors of production such as land, wages for labor, interest for owners of capital, and profits for employers.
In theory, GDP with an expenditure and income approach should yield the same number. However, because in practice calculating GDP with income approach is difficult, it is often used with the expenditure approach.
GDP or GDP is very important to learn because the data is one of the macroeconomic indicators and determine the resources used. The quantity or amount of such data may affect the economic situation in the surrounding environment and the reported country.
The logic that can be used by investors or traders to address the data is as follows: the first assumption that can be used when this data has decreased the growth rate of the current quarter compared to the previous period or quarter, it can be ascertained that the slowing rate of economic growth in a country will have an impact negative to the economic and security situation that has the potential to create an unfavorable condition.
The government as a regulator of fiscal policy will be burdened with low economic movement. The government should boost its economic activities in such ways as providing funds to create jobs or provide some kind of incentive or business capital assistance so that they can be self-sufficient in providing daily necessities such as opening a shop or a grocery store.
For the central bank as a monetary policy regulator, activities to be undertaken are like lowering interest rates. The purpose of lowering interest rates or loosening monetary policy with the aim of reducing the interest rate of investment credit and lower the value of its currency so that economic activities and business in the country more attractive to domestic and foreign investors.
The most important goal of the central bank is to increase domestic business so that investment activity will increase and the economy will automatically improve where the manufacturer or company or businessman needs more manpower. This is gradually a second assumption will emerge.
If the policy is successful then the country’s economic growth rate will increase, so the second assumption will soon be formed. This second assumption is when this data improves in this period or better than the previous period.
As we know that the higher the rate of economic growth or GDP is the better the economic conditions of the country. It is seen that consumer purchasing power will increase as wages and employment also rise.
Purchasing power increases then all business lines will also improve. Retail sales outlets are improving, the property sector is increasingly in demand, banking is increasing in activity as many people take consumption credits such as for homes and cars, the manufacturing sector will increase as new goods orders increase.
The impact of the second assumption is that the government will limit fiscal assistance such as capital incentives will be lowered so that the state budget will be transferred to other budget items. In other words, government savings and budgets are improving.
The central bank will begin tightening its monetary policy (tightening monetary policy) if the condition is achieved. The central bank will stop the stimulus aid and start raising interest rates. With conditions like this then the value of the currency will strengthen and if this happens in the US then the US dollar will strengthen against the world’s major currencies and against gold.