Frankly my dear...
GDP is mentioned a lot in financial reports and it is assumed that we know what it means. It's Gross Domestic Product.... of course it is!
So what exactly is GDP and how relevant is it to our economic fortunes? Many commentators seem to treat it as being synonymous with the health of ‘the economy’ but although this can be the case, it is not necessarily so simple.
GDP = government spending + private consumption + gross investment + total exports (less total imports)
Basically it's all the money spent by the country one way or another. Government spending on everything they support (by 'government' spending don't forget that it's our money they are spending!) plus everything we spend (on food and utilities and the kids and the car....) plus all the money spent by businesses on investments (hopefully to grow those businesses and create more jobs and wealth in the economy) plus the value of everything exported or sold to other countries, minus what we buy from other countries (hopefully we sell more than we buy because that's always the best way to be profitable.) So it is a tally of the financial movement within the economy but that could include many things that are not good for an economy. If millions were invested in a new factory which made rubbish that no one bought, that would also be included in GDP, as would the cost of tearing down the failed enterprise should it be necessary. It is impossible to deduce from a GDP figure how healthy an economy is. If a government spends more than it takes in, GDP rises, regardless of how the money is used so it's probably not worth paying much attention to, just something for the talking heads to make a noise about to justify their wages. If you want to know how the economy is doing, take a look around you. Are you feeling flush or cautious? Are your friends doing OK? Are there a surprising number of vacant shops on your high street? If your town is busy, are people actually spending or just milling around thinking about it?
by Rhett Gable
(who doesn't give a damn but still likes to tell us what he thinks)