Demystifying GDP: Understanding the Definition and Significance
GDP (Gross Domestic Product) is the total monetary value of all finished goods and services produced within a country in one year. GDP is the most commonly used means of gauging the size of an economy. GDP is often compared with other economic indicators like debt or exports. Economic indicators are expressed as a percentage of GDP to give a sense of whether those are large or small in the context of a particular economy.
GDP is one of the primary indicators for gauging the health of a country’s economy. GDP is calculated in two ways: adding up what everyone earned in a year which is the income approach or adding up what everyone spent in a year called the expenditure method.
There are two forms of GDP monitored. Nominal GDP and Real GDP. Nominal GDP is the total income of a country in a year. Real GDP is the total income of a country adjusted for inflation.
When economists refer to GDP, they mean Real GDP.
Global GDP is an especially important economic factor to predict since GDP growth affects corporate earnings growth which in turn affects all global financial markets including stock markets.
Total world GDP in 2018 was 85.931 trillion according to the World Bank.
| World GDP 2018 (World Bank) | |||
| Rank | Country | GDP (Millions, $USD) | % of World GDP |
| World GDP (2018 – World Bank) | 85,930,754,374,374 | ||
| 1 | United States | 20,544,343,456,937 | 23.91% |
| 2 | Euro area | 13,646,587,749,131 | 15.88% |
| 3 | China | 13,608,151,864,638 | 15.84% |
| 4 | Japan | 4,971,323,079,772 | 5.79% |
| 5 | Germany | 3,947,620,162,503 | 4.59% |
| 6 | United Kingdom | 2,855,296,731,522 | 3.32% |
| 7 | France | 2,777,535,239,278 | 3.23% |
| 8 | India | 2,718,732,231,258 | 3.16% |
| 9 | Italy | 2,083,864,259,623 | 2.43% |
| 10 | Brazil | 1,885,482,534,238 | 2.19% |
| 11 | Canada | 1,713,341,704,877 | 1.99% |
| 12 | Russian Federation | 1,657,554,647,150 | 1.93% |
| 13 | Korea, Rep. | 1,619,423,701,170 | 1.88% |
| 14 | Australia | 1,433,904,348,500 | 1.67% |
| 15 | Spain | 1,419,041,949,910 | 1.65% |
| 16 | Mexico | 1,220,699,479,846 | 1.42% |
| 17 | Indonesia | 1,042,173,300,626 | 1.21% |
| 18 | Netherlands | 913,658,465,709 | 1.06% |
| 19 | Saudi Arabia | 786,521,831,572 | 0.92% |
| 20 | Turkey | 771,350,330,455 | 0.90% |
| 21 | Switzerland | 705,140,354,166 | 0.82% |
| 22 | Poland | 585,663,814,824 | 0.68% |
| 23 | Sweden | 556,086,488,937 | 0.65% |
| 24 | Belgium | 542,761,092,103 | 0.63% |
| 25 | Argentina | 519,871,519,808 | 0.60% |
| 26 | Thailand | 504,992,757,705 | 0.59% |
| 27 | Austria | 455,285,818,035 | 0.53% |
| 28 | Norway | 434,166,615,432 | 0.51% |
| 29 | United Arab Emirates | 414,178,942,592 | 0.48% |
| 30 | Nigeria | 397,269,616,081 | 0.46% |
US GDP is estimated at $20 trillion and represents 23.91 per cent of the world GDP. The Euro Zone’s GDP is $13.6 trillion representing 15.88% of the world GDP. China GDP is estimated at $13.6 trillion and represents 15.84% of World GDP.
The economies of the United States, Eurozone and China represent 55.63% of World GDP. The United States has historically driven global GDP. It is the most important economy in the world.
Investors and traders aim to predict global GDP three to six months ahead in order to forecast the behavior of all global financial assets in the next three to six months.
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