Gross Domestic Product or GDP for short is a measure of the value of all goods and services produced by a country or region over a specific period. GDP numbers are most commonly used to gauge the economic performance of the country or region in question.
The official definition of GDP by the OECD (Organisation for Economic Cooperation and Development) is the slightly longer “an aggregate measure of production equal to the sum of the gross values added of all resident and institutional units engaged in production (plus any taxes, and minus any subsidies, on products not included in the value of their outputs”
The basic concept of GDP as a measure of economic prosperity first came into being during the wars between the Netherlands and England in 1652 and 1674. The idea was put forward by William Petty and was meant to be used a defense for landlords against the punitive taxes levied on them by the English crown to pay for the military expenses.
This Friday, October 27th sees the release of the Gross Domestic Product numbers by the U.S. Bureau of Economic Analysis for the third quarter of the year. Growth has been steady for the first and second quarter, and the numbers are expected to be in line with expectations with the consensus being for an increase of 2.5 percent over the second quarter. The corresponding figure for quarter two over quarter one was 3.2 percent while the first quarter saw a 1.2 percent growth.
Image source: U.S. Bureau of Economic Analysis
Increased production usually points to a more robust economic performance. If there’s no market for the goods or services, why produce them at all? Increases in production come with specific pre-requisites, one of which is more employees. You need more workers to deliver more goods, and more workers mean more consumer expenditure and more taxes (direct and indirect).
GDP is one of the key metrics to measure economic performance. Growth in GDP or GDP figures that come in above consensus expectation are generally considered a positive signal for the economy and by default, the underlying currency, in this case, the USD.
This article is for educational and informative purposes only and should not be considered as investment or trading advice.