What is a country's GDP and how does it affect its investments?

Find out what a country's GDP (Gross Domestic Product) is

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Do you know what a country's GDP is? An acronym for Gross Domestic Product, GDP is a very important indicator for projecting a nation's growth.

The sum of all a country's wealth, this economic indicator is always present in newspaper headlines and can affect your investments.

With this in mind, in today’s article, we will explain this concept and its relationship with the financial market in more detail.

What is a country's GDP?

Gross Domestic Product (or just GDP) is the sum of all goods and services produced during a given period.

Generally, this economic indicator is evaluated every quarter and at the end of a year.

For example, in 2021, Brazil's GDP (Gross Domestic Product) closed 2021 up by 4.6%, totaling R$ 8.7 trillion.

There are several data that are used to calculate GDP, such as research from IBGE and external sources.

The results are compared with the previous year, thus arriving at the number that will indicate the economic growth and activity of a country.

The GDP of a country, state or city is divided into three large sectors: agriculture, industry and services.

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Data used to calculate GDP

As we said, to calculate GDP, different data are used.

See the main ones:

Balance of Payments (Central Bank)

· DIPJ – Declaration of Economic and Tax Information for Legal Entities – (Federal Revenue Service)

· IPA – Broad Producer Price Index – (FGV)

· IPCA – Broad National Consumer Price Index – (IBGE)

· PAM – Municipal Agricultural Production – (IBGE)

PAC – Annual Trade Survey – (IBGE)

· PAS – Annual Survey of Services – (IBGE)

· POF – Household Budget Survey – (IBGE)

· PIA-Company – Annual Industrial Survey – Company – (IBGE)

· PIM-PF – Monthly Industrial Survey – Physical Production – (IBGE)

· PMC – Monthly Trade Survey – (IBGE)

· PMS – Monthly Survey of Services – (IBGE)

Source: Parmais

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Nominal GDP and Real GDP

There are two types of GDP: nominal GDP and real GDP.

The difference is relatively simple.

• Nominal GDP: Nominal GDP is calculated based on the prices and values of a given product or service at the time they were produced.

• Real GDP: Real GDP is calculated based on constant prices. It measures the physical volume of a product or service. This means that it does not take inflation into account.

What analyses can be made using GDP?

GDP helps to understand a country.

Among the analyses that can be made from the Gross Domestic Product are:

• Performance and development of each region over a period

• Comparison of the local economy with that of other countries

• Analysis of GDP by dividing it by the number of inhabitants of a nation, checking how much each individual would receive if the entire amount were divided into equal parts. This is GDP per capita.

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Performance and development of each region over a period

When there is news on television about the prospect of economic growth, it is important to understand that they are talking about the increase in GDP.

Analyzing the Gross Domestic Product periodically is necessary to understand the evolution of a country's economic activity.

In this way, it is possible to estimate measures and events that are contributing to economic growth.

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Comparison of the local economy with that of other countries 

One way to compare the GDPs of different countries is through an exchange rate, the price of one country's currency in relation to another's.

However, although GDP has several economic implications, it has no correlation with the HDI (Human Development Index).

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GDP per capita

GDP per capita is the gross domestic product divided by the number of inhabitants of a country.

However, it is important to remember that GDP per capita is considered a flawed method of economic analysis, as it does not take into account the distribution of wealth.

After all, we are talking about a simpler arithmetic mean, which does not reveal inequality relations.

According to a study by FGV, Brazil's GDP per capita should fall again this year and only recover to pre-crisis levels in 2029.

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What is the difference between GDP and National Treasury?

GDP does not actually calculate a country's wealth. It indicates the flow of goods and services produced over a period of time.

The best person for this is the National Treasury, responsible for managing the financial resources that enter the public coffers.

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How does GDP affect your investments?

When GDP is falling, investors do not see the market as a safe option.

GDP grows when companies are exporting more and people are purchasing products in their own country.

This certainly boosts the economy and has positive impacts on people's behavior. Stock exchange.

Typically, higher growth brings good returns to investors.

Furthermore, the positive performance of the economy also impacts the pricing of assets in another country, through the perception of risk.

When there are positive growth prospects, investors will want to invest in Brazil.

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Is it possible to predict a downward movement in GDP?

The behavior of indicators such as IPCA, Selic (basic interest rate) and the Trade Balance show the trend of the GDP closing.

Crisis scenarios, for example, signal a decline in a nation's economic growth.

The increase in interest rates, for example, is a sign that GDP tends not to show good results.

Conclusion

Now you know what a country's GDP is, how it is calculated and its relationship with investments.

It is one of the main indicators of economic activity and is used to assess the financial health of a given country.

For this reason, it is very important to know what Gross Domestic Product (GDP) means.

If the GDP is positive, for example, it means that the country's economic activity is growing.

On the other hand, if expectations are for a decline, it means that economic activity is decreasing, which has a negative impact on sales and also on investments.