Gross domestic product (GDP)

The value of the finished goods and services produced by a country, either annually or quarterly, is called gross domestic product (GDP).

Inflation can artificially inflate the value of a country’s GDP, so there are two measures of this important economic indicator: "real" or "current dollar" GDP, and "nominal" GDP.

Nominal GDP shows the value of the good and services produced in a year using prices from that year. Real GDP uses pricing that is fixed to a given year, and provides a better representation of the actual increase in goods and services being produced, since inflation can’t artificially increase this number.

When a country’s GDP rises, this generally indicates that the standard of living there is improving and that the economy is growing. For example, GDP is used to measure whether or not an economy has slipped into a recession. The broad definition of a recession is two consecutive quarters of negative GDP growth. This signals that an economy is shrinking instead of growing.

Canadian GDP is reported by Statistics Canada, while U.S. GDP is reported by the Department of Commerce Bureau of Economic Analysis.

When major world economies report changes in their GDP, stock markets are directly affected. This can be seen by how markets react when the U.S. or China (the world’s two largest economies) announce quarterly or annual GDP numbers, or when analysts or governments revise their estimates of future GDP for these economies. GDP numbers signal to the stock markets whether or not to expect rising or falling demand for goods, services, and raw materials.

GDP also provides an important benchmark against which other economic data can be measured. For example, a country’s debt is often compared to its GDP, and is discussed as "debt as a percentage of GDP."

If a given country’s debt as a percentage of its GDP rises significantly, investors become worried about that country’s ability to meet its debt payments. Depending on the economic importance of the country in question, this concern has the potential to cause global market volatility.