Economics are very important for any country and something that individual governments rightfully pay great attention to. In general terms, the economy of a country relates to how well it is doing financially and can also give insight into how its business sector is performing. It can also indicate the general feeling among consumers in terms of the country’s financial status.
But what are the five main indicators of a national economy that is doing well?
Stable inflation can certainly be seen as one sign of a healthy national economy. But what is it and what causes inflation to fluctuate? While this can be something that is interesting to learn about on a personal level, those who invest in stocks, bonds and FX can really boost their trading by knowing how to spot a country that has a strong economy.
In simple terms, it is the rate at which the price of services and goods in a country’s economy rises over a set period of time. In terms of causes, inflation figures can be affected by the demand for goods and services, and input costs.
Stable inflation of around 2% to 3% is generally seen as an indicator of a healthy economy. This is because it stops high inflation impacting how much people spend and protects from low inflation hindering demand from consumers for goods and services.
Low unemployment figures
Much of the state of any economy can be gleaned from unemployment figures. If a country has low unemployment, this can be a sign their national finances are in good shape. But why is this the case?
In general terms, low unemployment means more people are working. This in turn means they have more cash to spend and gives a boost to overall consumer spending levels. More people at work also gives people extra confidence in a country’s economic outlook to invest and save money. Rising rates of employment also point to a thriving business sector and a country that produces more.
Growth in wages
As well as more people in employment, another sign of a vibrant national economy is a growth in wages. This is very important as spending power is linked directly to consumer income.
In simple terms, the more money people earn, the more they have to spend on goods and services in their local community. This in turn helps to boost the country’s overall prosperity and helps businesses flourish. If you take Australia as an example, people from this country would not be able to spend as much money visiting the most beautiful places in Sydney without their high wages providing the cash to do so.
Growth in new house sales
The real estate sector is a massive part of most national economies and is therefore a good indicator of financial health on a macro level. This is especially true for the sale of new homes, for two main reasons.
First, if people are buying new homes, it is a sign that a country has a bright financial outlook. Consumers will not commit large sums into purchasing a new home if the economic outlook of a country is not good.
In addition, more new homes being purchased means more will have to be built. This is great news for the construction industry in any country and will help businesses within it to progress. As this industry can be one of the largest employers, it therefore means the whole country gets a boost in economic terms. It is not just the companies building new homes that benefit, either – firms that supply them with the materials they need will see their sales rise and this also reflects an economy that is doing well.
One of the best indicators for economic health is gross domestic product (GDP). With this in mind, many people will look at a country’s GDP figure to get a decent overall view of how it is doing financially.
GDP simply shows the value of services and goods that a country is producing. As such, it gives a good overview on whether the economy is slowing down or doing well. A high GDP figure signals an economy that is healthy, as it means the value of its goods and services is high.
Indicators of a healthy national economy
Whether you like to trade on the world’s financial markets or simply have an interest in knowing what makes a healthy national economy, the points listed here will give you a good start. The five indicators we have looked at will certainly give a good overall idea of how well a country is doing financially.