Understanding the market we trade is vital.
In this Article, I would like to take a brief overview of the current World Economic Climate, together with factors that influence. Should it be enjoyed, I will continue to delve into the statistics, to offer a complete understanding, at the end.
Key To Charts :
These charts are prepared for ease of reference. In all cases, I have calculated the World average (from the data available). White is favourable. Colour is above the average to a maximum of double. Grey proceeds thereafter and black indicates that data was not available from my reliable sources.
In the case of Food Inflation and DEBT/GDP, I have set the roof for colour at a maximum of an additional 50% of the World average.
The statistical data is included for ease of reference.
At a glance, S & P Ratings offer a picturesque view of the current economic climate. It is, however, a stagnant picture.
Interest Rates are vital to analyzing the future potential of a country and its economy and currency. Higher Interest Rates attract investors, whilst lower Interest Rates do not. For traders, the difference between two Interest Rates offers a clue to the volatility of the pair in the market. It is an idea to trade one currency with a high Interest Rate against a currency with a lower Interest Rate.
Within the economy of the country, when Interest Rates are low, the surplus money is pushed back into the economy and thus it raises the Inflation – supply and demand. When the Inflation becomes too high, the banks will again increase the Interest Rates to reduce the Inflation. So a vigilant watch on Inflation offers clues to Interest Rate hikes and the possibility of increased investors. For countries, a more stable Inflation Rate is suitable as it affords companies security to invest. In addition, the Inflation Rate should be lower than the Annual Growth Rate.
This correlation between Interest Rates and Inflation is only beneficial when the GDP Annual Growth Rate is reasonable. When the GDP Annual Growth Rate is poor and the Inflation becomes too high, it can lead to recession.
To assess the GDP Annual Growth Rate, one can look at the GDP/Capita. A low GDP/Capita means the total GDP is too small for the population and thus the GDP Annual Growth Rate is too low.
GDP Annual Growth Rate improves with Employment. Similarly, a high Unemployment Rate is a sign of a weak economy.
Not a direct link however there is often a trade-off between rising Employment / strong economic growth and rising Inflation. In Deflation, however, low Inflation may boost Employment and thus assist the GDP Annual Growth Rate.
Food Inflation is a volatile statistic but an insight into the standard of living of the population who support the GDP.
Lastly, today, DEBT/GDP supports what the country produces against its debts. It is a show of economic leverage, i.e. a low DEBT/GDP ratio is more attractive to investors.
Understanding the current World Economic Climate is not achieved in one day. I hope the information supplied is a useful point of reference and look forward to continuing the discussion.