Considered the “speedometer” of the economy, the GDP (Gross Domestic Product) is an indicator that helps to show the volume of wealth produced by the country in a given period, explains the IBGE (Brazilian Institute of Geography and Statistics), responsible for disclosing the Dice.
Although useful for pointing out the performance of the economy and allowing international comparisons and over time, the indicator does not serve as a thermometer to show important issues, such as income distribution and quality of life. Understand:
What does GDP indicate?
GDP is the sum of all final goods and services produced by a country, state or city, usually in a year. It is not the total wealth existing in the country, but an indicator of the flow of new final goods and services produced during that period.
The data also only measures final goods and services to avoid double counting. “If a country produces BRL 100 of wheat, BRL 200 of wheat flour and BRL 300 of bread, for example, its GDP will be BRL 300, since the values ​​of flour and wheat are already included in the value of the bread”, exemplifies the IBGE.
Who needs this data?
Based on these data, it is possible to carry out various analyzes and weightings, such as measuring the evolution of GDP over time, comparing the performance of the economy quarter by quarter or year by year. It is also possible to make international comparisons, which show the size of the economies of different countries. The methodology undergoes periodic international reviews.
What is this information for and what is it not?
The GDP is a kind of summary indicator of the economy and helps to understand the country, but it does not show important factors, such as income distribution, quality of life, education and health, according to the IBGE.
This is because the economy may have grown, but the wealth may have been concentrated in the hands of a few or not invested in improving basic services.
Other surveys that follow different sectors and data are used to calculate GDP, such as the Central Bank’s Balance of Payments and monthly surveys of industry, commerce and the service sector.
The calculation also follows international recommendations, so that it is possible to compare results from Brazil and other countries. Brazil even participates in cooperation agreements to help other countries measure their national accounts.
Why does GDP disclosure affect the stock market and other markets?
Mainly because of the comparison between the result and expectations.
Investors make decisions based on the growth estimates of different sectors and companies as they expect future appreciation.
If economists have been predicting higher growth, but the measure is lower, investors consider that some investments are more expensive than they should and decide to sell them.
If, on the contrary, the indicator comes higher than expected, investors tend to buy securities, causing price increases.
What does GDP say about the country’s wealth?
It is a kind of “speedometer” of the economy, which shows how many billions that country was able to produce during a year or quarter and whether the volume of wealth produced rose or fell. Some countries, however, have relatively low GDPs, like Iceland, but a high standard of living — or vice versa, like India.
And what about the wealth of the inhabitants?
There are other ways of measuring the population’s standard of living. One of these forms is GDP per capita, which is the division of GDP by the number of inhabitants. In this way, it is possible to measure how much of the wealth produced would fit individually to the citizen, if everyone received equal shares.
This number is an average, so it does not reflect how well wealth is distributed across the population. But, in the year-to-year comparison, it is possible to assess whether, as a whole, the amount available to be distributed is increasing or decreasing.
Other indicators help to understand income distribution, such as the Gini index, or quality of life, such as the HDI.
To help explain the importance of the indicator, IBGE also produced a video:
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