All a nation makes in a year:GDP is the sum, made clear.
The total monetary value of all goods and services produced within a country over a specific period.
GDP is one of the most important economic indicators, as strong GDP growth tends to strengthen a currency.
In plain words
Gross domestic product, or GDP, adds up the value of all the goods and services a country produces in a period, usually a quarter or a year. It is the broadest single measure of the size of an economy, and its change from one period to the next is what people call economic growth.
See it move
Quarter 4: the largest here
Why it matters
GDP figures are published on a schedule and markets watch them, because growth feeds into what a central bank may later do with interest rates. A currency often reacts to the difference between the published figure and the figure that was expected.
Worked example
An example only. The figures are round and invented for the arithmetic: they are not market prices.
An invented economy produces 500 billion in one quarter and 505 billion in the next, measured at the same prices.
- 1Change in output505 − 500 = 5 billion
- 2Growth rate5 ÷ 500 = 0.01
- 3As a percentage0.01 × 100 = 1%
The economy grew by 1% from one quarter to the next.
A common mistake
It is easy to assume that a strong GDP figure always lifts a currency. If the strong figure was already expected the price may hardly move, and a figure that is good but below expectations can be followed by a fall.
Check yourself
Educational information, not investment advice or a recommendation to trade.