World Economic Indicators and Indices react to – or even foreshadow – the health of the global economy.
World economic indicators are specific indices and measures that indicate not only the overall health of the global economy, but also provide some insight into its future. Economic indicators can be found in many different forms.
Some use economic statistics that illustrate the ups and downs of particular trends in economic activities. The most commonly used world economic indicators are: rates of inflation, the unemployment rate, the real GDP growth rate, GDP-Per Capita, GDP-Purchasing Power Parity, amounts of foreign direct investment, populations living below the poverty line, and current account balances.
World Economic Indicators: An Overview
To understand the utility of economic indicators, it is first important to know how they are related to the economic activities of the world.
An indicator is said to be procyclic if it moves in the direction of the economic movement (or cycle) of a country. This means that the movement of the economic indicators is directly proportional to the trend of economic performance. If economies show a growing trend, the value of the procyclic economic indicators also increase. Gross Domestic Product is an ideal example of this type of world economic indicator.
Countercyclic economic indicators are inversely related to economic performance. The rate of unemployment is an example of a countercyclic type of economic indicator. If the economy slows down, the rate of unemployment increases.
Besides these two economic indicators, another type of world economic indicator is known as an acyclic economic indicator. However, this type of economic indicator is not directly related to the economic health of the country. Because of this, acyclic indicators are not a good method by which an economy’s health may be measured.
Availability of Economic Statistics
Statistics such as GDP figures, unemployment rates, current account balances, stock market values and the like are economic indicators used on a monthly, quarterly or even on an immediate basis. Rates of unemployment are usually released every month, whereas the GDP figures are made available only on a quarterly basis. In the case of the Dow Jones Index, its figures are instantly available.
More on World Economic Indicators
The quality - and thus the value - of the economic indicators depends on the accuracy with which they predict the forthcoming changes in economic activities. The best world economic indicators are those that foreshadow economic changes that are going to take place in near future. These leading economic indicators come in handy for investors because their investment decisions often greatly depend on the economic fluctuations of the country.
Lagging world economic indicators, on the other hand, only respond to the changes of the economy a few quarters later. The unemployment rate is one such example.
Unlike the leading and lagging economic indicators, a third category of indicators is the coincident economic indicators - these indicators move in the same pace with the changes in an economy.