Download Gross Domestic Product (GDP) Table 1 – GDP and

Gross Domestic Product (GDP)
Gross Domestic Product (GDP) is one of the most important macroeconomic
indicators for economists and investors. GDP measures how fast or how slow the
domestic economy is growing. In simple terms, GDP represents the total value of all
goods and services that were produced in the Indian and sold (both domestically or
exported).
Table 1 – GDP and Compnents
By economic activity GDP at
constant prices
(A)
(B)
(C)
(D)
(E)
(F)
(G)
(H)
(I)
(J)
(K)
Agriculture,
forestry
and
fishing
Industry
Mining & quarrying
Manufacturing
Electricity, gas & water supply
Construction
Services
Trade, hotels, transport and
communication
Financing, insurance, real estate
and business services
Community, social & personal
services
GDP at cost factor
Source : CSO.
% share
in
current
quarter
(%, YoY)
17.3
Q1FY14
2.7
Q4FY13
1.4
Q1FY13
2.9
26.6
2.0
15.0
1.8
7.7
56.1
26.4
0.2
(2.8)
(1.2)
3.7
2.8
6.6
3.9
2.7
(3.1)
2.6
2.8
4.4
6.6
6.2
1.8
0.40
(1.0)
6.2
7.0
7.7
6.1
17.7
8.9
9.1
9.3
12.1
9.4
4.0
8.8
100.00
4.4
4.8
5.3
Importance of GDP
 GDP consists of consumer spending, Investment expenditure, government
spending and net exports hence it portrays an all inclusive picture of an
economy because of which it provides an insight to investors which highlights
the trend of the economy by comparing GDP levels as an index.
 GDP is used as an indicator for most governments and economic decisionmakers for planning and policy formulation
 In case of GDP, each component is given the weight of its relative price. In
market economics it clicks as prices reflect both marginal cost of the producer
and marginal utility for the consumer, i.e. people sell at a price that others are
willing to pay
GDP helps the investors to manage their portfolios by providing them with
guidance about the state of the economy
 Calculation of GDP provides with the general health of the economy. A
negative GDP growth portrays bad signals for the economy. Economists
analyse GDP to find out whether the economy is in recession, depression or
boom.
GDP Impact on Bonds
When the GDP report is released, its value is immediately compared to market
expectations. The bond market is likely to react positively if the GDP value is at or
below the expected value. This is especially true if real final sales are poor and
inventories are increasing because of slowing demands. Flat or declining economic
growth is likely to motivate the RBI to decrease the interest rates -- this can increase
demand for bonds, and push prices higher.
Conversely, the value of existing bonds could drop if GDP exceeds expectations. A
strong GDP report coupled with rising inflation will increase speculation and fears
that the RBI will increase short-term interest rates.
GDP Impact on the Currency
A strong economy supports interest rates and corporate profits. This combination
attracts foreign investors to both the stock market and to the bond market. This
attraction increases the supply of dollars, and can help increase the value of the
rupee relative to other foreign currencies.