GDP (gross domestic product)
The total value of goods and services produced in an economy over a period, usually reported quarterly. Its growth rate is the broadest measure of economic performance.
Gross domestic product measures the size of an economy. Traders care less about the level than the growth rate: how much bigger or smaller the economy was than in the previous quarter or a year earlier.
How it is reported
- United States: the Bureau of Economic Analysis publishes an advance estimate about a month after each quarter ends, followed by revised estimates. US quarterly growth is usually quoted as an annualised rate.
- Euro area: Eurostat publishes a preliminary flash estimate around a month after the quarter, quoted as quarter-on-quarter and year-on-year change, not annualised.
- United Kingdom: the ONS publishes monthly GDP figures as well as quarterly estimates.
The annualised versus non-annualised difference matters. A US figure of 2.0% and a euro area figure of 0.5% may describe broadly similar growth, because 0.5% per quarter compounds to about 2% a year.
Why it moves currencies
Strong growth can lead to higher inflation and interest rates, which tends to support a currency; weak growth points the other way. Two consecutive quarters of contraction is a common, informal definition of a recession. Because GDP is backward-looking and well forecast by other data, the market reaction is often smaller than for CPI or NFP, unless the figure is a large surprise.
Worked example
Illustratively, consensus for a US advance GDP reading is 2.0% annualised. The release shows 0.8%. The dollar may weaken as markets bring forward expected rate cuts.
Not investment advice. This is general information and education, written without knowledge of your circumstances. It is not a recommendation to buy or sell any instrument. Past performance is not a reliable indicator of future results. Trading leveraged products carries a high risk of losing money. Risk warning