Economic growth announcements report on how well a country’s economy is doing. Economies can move in one of three directions: they can be growing, they can be stagnating, or they can be contracting. When an economy is growing, everything within the economy is able to function normally and profitably. When an economy is stagnating or contracting, however, all sorts of problems start to emerge, and the country’s currency typically suffers.
Economic growth data are released in one key announcement that you need to watch:
Gross domestic product (GDP): Measurement of the total economic output of a country
Impact on Trade Flows
Expanding Economy -> More Money in Consumers’ Pockets -> Increased Demand for Imports
Contracting Economy -> Less Money in Consumers’ Pockets-> Decreased Demand for Imports
Impact on Investment Flows
Expanding Economy -> Profitable Companies Bullish Stock Market Increased Investment Flows
Expanding Economy -> Rising Inflation –÷ Higher Interest Rates Attractive Government Debt Market -> Increased Investment Flows
Contracting Economy -> Struggling Companies ->Bearish Stock Market ->Decreased Investment Flows
Contracting Economy -> Falling Inflation -> Lower Interest Rates -> Less Attractive Government Debt Market ->Decreased Investment Flows
Impact on Money Supply
Expanding Economy —> Central Bank Raising Interest Rates to Prevent the Economy From Overheating –> Decrease in the Money Supply
Contracting Economy —> Central Bank Lowering Interest Rates to Stimulate the Economy —> Increase in the Money Supply
Impact on Investor Fear
Expanding Economy —> Confident Investors
Contracting Economy —> Nervous Investors
Typical Impact on the Currency
Expanding Economy -> Stronger Currency
Contracting Economy —> Weaker Currency
