GDP and GNP in fundamental analysis
According to analysts, 2019 will be a difficult year for the foreign exchange, commodity and stock markets. The first signals came at the end of 2018 from the stock markets, whose companies in their quarterly reports showed a decline in production with a deterioration in forecasts for the next periods. With the revision of forecasts towards a decrease in production and sales, they revised their vision of the development of the world economy and the Central Banks. Despite the fact that the overall indicator of the gross domestic product of the countries of the world remains in positive territory, it is expected to decrease in comparison with 2018. Although we are talking about 0.1-0.3%, this turned out to be enough for investors to first place all commodity markets on the bearish direction.
Gross domestic product of the country
A country’s gross domestic product characterizes the amount of goods and services produced in monetary terms. The calculation method takes into account the volume of domestic production, government spending, investment, exports and imports (trade balance). This model is called Keynesian. According to the distribution methodology, the level of salaries, gross profit and expenses, taxes are taken into account.
A positive trend is GDP growth on an annualized basis in comparison with the previous period. Also, a positive signal is the excess of the actual indicator over the forecast. GDP growth means an increase in production and welfare of the population, which has the ability to meet the growing supply with its demand.
Disadvantages of the indicator “Gross Domestic Product of the Country” for trader analysis:
- Lack of a unified calculation method. There have been cases in history when GDP data were distorted by artificially changing statistical indicators. This method is not forgery or fraud. It is rather a manipulation of numbers in order to attract foreign investors.
- Weak information content. GDP data are a consequence of the Central Bank’s policy. Much earlier, investors will be able to assess the prospects for the economy based on inflation, balance of payments, and purchasing power.
Information on GDP is published in analytical feeds quarterly and annually, intermediate data can be found in the releases of the Central Bank representatives.
GNP (Gross National Product) is an additional fundamental indicator that represents the amount of goods and services produced by residents of the country, wherever they are. It is believed that the GDP indicator more accurately reflects the dynamics of the country’s development, influencing the exchange rate of the national currency. GNP will be very different from GDP in developing countries, where there is a large percentage of people working outside the country. But the economy of developed countries affects the exchange rate of major world currencies and assets, therefore GDP remains the main analytical indicator.
Output… The country’s gross domestic product is an aggregate indicator that reflects the overall development of the country’s economy (manufacturing and services). For traders, it is less important than the discount rate or unemployment rate, since it is the target. In other words, the state sets a forecast for GDP for the next year and, by methods, including monetary (monetary) policy, tries to achieve it. According to intermediate statistical indicators (inflation, production level, consumer price index, etc.), traders can assess the reality of achieving the set plans. In the case of revising the planned GDP, it is possible to draw a conclusion about the future of the economy in the long term.