Gross domestic product, also known as GDP, is the monetary value of all the finished goods and services produced within a country’s borders. It’s a important economic measurement because it is one of the key methods used to gauge whether an economy is expanding or contracting. The overall dollar value per year is seen a snapshot of what value a specific country or region produced.
Below I have pulled a sample of countries from the developed world. You will see a graphic representation of the year-to-year change in GDP measured as a percent. I have also included a linear line, which is used to help show the rate which the country’s GDP rate of growth/contraction is changing overtime.
What you will see is that across the countries sampled, all have a downward trend since 1961 to 2015. Some are more steep than others, yet every country is not performing as well as it once did. This ultimately has an impact on your ability to realize investment returns. It also speaks to the strategy central banks around the world are taking. The banks are focusing on keeping interest rates low or even negative in order to put pressure on business and consumers to invest in projects and spend their money. Low borrowing costs equate to less risk when investing in a project or buying a debt financed item.
Low interest rates also cause the behavior of investors/savers to change. Since secured bank deposits earn little to nothing, other avenues must be used to realized a given return on your investment. This is why when the Federal Reserve, European Central Bank and Bank of Japan keep rates low or lower interest rates, the stock markets around the globe respond positively. At face value it seems odd, since keeping rates low is an indication of economic weakness, yet a consequence of low rates is the fact that savers must look to tools with greater risk in order to gain a return. This pushes money that would typically be outside the market into the market. Remember, all the nations listed below have a large population of retired or nearly retired people. These people are focused on saving, living off their savings and reducing their consumption of goods. They need a return on their money to live comfortably.
Low borrowing costs also enable companies to do share buybacks, which reduce the supply of their stock.