Chapter 5 - Introduction to fundamental analysis

Lesson 5.7
What Is the Economic Growth Rate?
10 min to read
By Point Trader Group

The economic growth rate is the percentage of change in the value of all goods and services produced in a country during a specific period of time, compared to the previous period. The economic growth rate is used to measure the comparative health of an economy over time. The figures are usually collected and reported every three months annually.

In most cases, the economic growth rate measures the change in a country's gross domestic product (GDP). In countries with economies that are highly dependent on foreign profits, GNP can be used. The latter takes into account the net income from foreign investment.

When tracked over time, the economic growth rate indicates the general direction of a country's economy and the size of its growth (or deflation). It can also be used to forecast economic growth for the next quarter or year.

  • In the United States and most other countries, the economic growth rate is the change in the country's gross domestic product.
  • The economic growth rate is tracked over time as an indicator of the general direction of the country's economy.
  • Generally speaking, increased demand increases production and increases the economic growth.

The increase in the economic growth rate is usually considered positive. If the economy shows two consecutive quarters of negative growth rates, the nation is in a formal recession. In other words, if the economy fell 2% from the previous year, this means that its total population witnessed a 2% decrease in income in that year.

In the United States, GDP began to grow in March 2009 as it emerged from the Great Recession. From the abysmal rate of over -4%, it steadily increased until it peaked in 2014 with a growth rate of nearly 6%. In 2018, it was 2.9%, up from 2.2% in the year earlier.

The US figures are calculated by the Federal Bureau of Economic Analysis (BEA), which reports GDP on a quarterly basis and includes the economic growth rate as a key figure.

Economic growth can be promoted through a number of factors and events. More commonly, the increase in product demand leads to corresponding increases in production, and the net result is more income.

Technological developments and new developments in products can have a positive impact on economic growth. An increase in demand from foreign markets can lead to higher export sales.

In either of these cases, the influx of income, if large, increases the economic growth rate.

An economic deflation occurs when consumers drop spending, so demand falls and production falls. As production falls, jobs are lost, and demand is falling more. Then, Quarterly GDP comes in a negative number.

Examples of economic growth rates

In July 2019, the United States was an economic milestone. Its economy has been growing continuously since June 2009, making it the longest economic expansion in the country's history.

In statistics, however, everything is relative. In 2018, the U.S. economy grew by 2.9%. Some economists believe this figure represents a high point for some time to come. They expected a 2.2% expansion in 2019, and another slowdown in 2020.

By contrast, India's economic growth rate fell to 5.8% in the first quarter of 2019, the lowest rate in five years. Given the rapid growth of the nation in recent years, there has been a lot of recovery due to the sharp decline in industrial production and the decline in car sales, both of which are factors in the lower rate.

However, government economists lifted the expected growth for the full fiscal year that started on March 31 to 7%, compared to the previous annual growth of 6.8%. The government of India plans to boost the economy with tax incentives and new investment.

The interest rates, inflation, GDP, and economic growth rates are the most important basic economic indicators that are used by the fundamental analysts in the fundamental analysis of the foreign exchange market. 

It is important to understand that there are a lot of economic data that will be released during the trading week from Monday to Friday that have a significant impact on the "Forex" currency market. You should note that you need to know how basic analysis can be made part of your daily program to carry out your trading safely and anticipate price movements, so that you are not exposed to violent and unexpected market movements through technical analysis, and you can view the list of economic data through the economic calendar.


Get financial advice from Point trader group experts


For Free Expert Financial Advice