Economy – is defined by Webster as “the process or system
by which goods and services are produced, sold, and bought in a country or
region”. In investing it is important
to understand the state of the economy of the country you are investing in.
Why?
The current state of the economy of the country
you are investing in will determine what financial products you will invest in
as well as in what industries you will invest in.It is also important to understand the investing country’s trading partner countries economies. For example: US is
a major trading partner of Canada, and the state of the US economy affects the
value of the investments in Canada.
What are some major indicators
to analyze to determine economy state?
Gross Domestic Product
(GDP) – is defined as “… the value
of the goods and services produced by the nation's economy less the value of
the goods and services used up in production,” .
GDP is usually measured every quarter, and compared to previous quarters to
understand how the economy is doing. When GDP goes up compared to a previous
quarter(s), it means the country/economy is producing more, and more people are
employed. Which is a good thing. Generally each country maintains information about
its economic indicators. For Canada such information is maintained by
Statistics Canada. You can find GDP
related information for the last few quarters here :
http://www.statcan.gc.ca/daily-quotidien/150901/t002a-eng.htm
You can see that GDP has been decreasing each quarter since the 3rd
quarter of 2014. You can pull data for previous years to try to get a better
understanding of how the economy is doing now compared to historical data. In
order to evaluate the overall economy we can take a look at some of the other
indicators. For each indicator we will
assign one of the three states. [ Good, Bad or Stable ]
GDP : Bad
Personal
Income – is defined as “…real disposable personal income…”
…”, this means income adjusted for inflation that a person has available
after all mandatory needs are met.In Canada’s case the stats Canada website only
has data till 2013 for personal income, which tell us personal income increased
every year from 2009 to 2013. Normally, personal income is broken down further
to understand how much an average person is saving vs. spending, but an overall
trend can be assumed here. That the more
personal income earned, the more income that will be spend by the consumer.
http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/famil105a-eng.htm
Personal Income: Good
Balance of Payments
– “Is a record of all payments or monetary transactions between a particular
country and other nations during a specific time period”.
Canada’s
Balance of Payment Account Details:
http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/econ01a-eng.htm
Canada has been running a deficit since 2010. It is a user
of the world’s resources to support its economy. However the deficit it runs
year over year has been decreasing.
BOP: Good
There are two type of information a person
can look at. Historical and Forecasts. The above 3 indicators we have looked at
are historical (past ) data. Now let’s take a look at some future forecasts of
various indicators.
- GDP is expected to go up over the next few
quarters. – Good
- Unemployment rate is expected to be somewhat
steady – Stable
- Inflation is expected to be somewhat steady –
Stable
- Most other indicators are forecasted to be
stable
Based on historical information
and forecasts, it can be concluded the Canadian economy is stable/good.