By Sher Mehta
This non-technical, pragmatic and reader-friendly guide has been written primarily for a very wide ranging business audience – comprising professionals, students and investors across the globe who are not economists or have little, no or inadequate background of economics and are associated or involved in any way (either through work, study or investments) with the corporate/ business/industry/banking/financial services or financial market sectors.
It provides a simple and straight forward introduction to a set or an assortment of key economic indicators (21) such as GDP, unemployment, inflation, consumer spending, private investment etc. which the author, predicated on his experience (over 17 years) of macroeconomic analysis in both developed (London, UK) and developing (Mumbai, India) economies, feels are the most important indicators that can be used to:
- Broadly track/monitor/analyze the overall economic performance/environment of different economies (developed and developing) and the global economy in a coherent and practical manner;
- Get a better understanding of what economists, policy makers, media and experts have to say about key economic issues (such as GDP growth, inflation, unemployment, interest rates, exchange rates, recession etc.);
- Make more prudent well-informed business/investment/commercial/financial decisions in a milieu of rising economic uncertainty;
- Gauge the likely short run or near term macroeconomic outlook (i.e. future direction) of different economies (developed and developing); and,
- Analyze the macroeconomic stability of different economies (developed and developing)
After reading this guide, one should be able to broadly interpret these select (21) economic indicators and know what to look for and why and also be able to comprehend their significance, which in turn should enable the aforesaid audience to conduct the above-mentioned (5) types of analysis in a ‘smart’ and ‘expeditious’ manner.
No knowledge of mathematics or statistics is required to understand this guide. Further, technical jargon and complex theoretical knowledge and equations have been deliberately avoided to make this guide highly accessible to readers across a very wide spectrum. Further, it has been written in a descriptive manner.
Due emphasis has been given on providing the ‘distilled essence’ of these select economic indicators and the kind of information that is more practical and vital to know, to facilitate an easier comprehension of the overall economic environment and rapid changes in the same and to enable a better understanding of the regular stream of economic news related to various economies (developed and developing) and the global economy that we read about everyday in national and international print and online media. Most importantly, this guide takes a global view and therefore this ‘framework’ or ‘tool-kit’ of 21 economic indicators can be used to compare the economic performance of various economies across the globe at any particular point in time.
Being able to make such a comparison, in addition to being able to perform the above-mentioned types of analysis, is a compelling imperative or critical today even for professionals, students and investors who are not economists or adept at economic analysis, considering the inexorable march of globalization, increasing economic interdependence between economies across the globe and greater synchronization of business cycles internationally (due to which there is greater possibility of transmission of recessions and booms in one country to other countries via many channels, such as the trade channel) that are making the economic environment more unstable and volatile (as is being reflected in more volatile growth rates, inflation rates, exchange rates and interest rates in the short run in economies across the globe) – which in turn is increasingly influencing or affecting business conditions/environment (and making it more complex), corporate growth strategies and earnings and financial, investment, managerial, strategic, marketing, sales, consumption and savings related decision–making worldwide.
Having stated the above, the underlying aim or objective of this guide is to empower professionals, students and investors across the globe to coherently comprehend the rapidly changing economic environment in their respective economies, other economies and the global economy.
Unfortunately, many of them remain bewildered by the frenetic pace of change in the domestic and global economic environment and increasing economic interdependence between economies. Consequently, they are unable to:
- Fathom or grasp the challenges posed by a rapidly changing economic environment;
- Correctly judge government economic policies; and,
- Make an appropriate assessment of the overall economic environment or how any economy is performing at any particular point in time or take prudent business/financial/commercial decisions in a milieu of escalating economic uncertainty.
What compounds their problem is the lack of awareness of what economic indicators to exactly focus on (while trying to understand the increasingly complex economic environment) and the existence of a plethora or a very wide range of economic indicators to choose from, which makes such assessments a particularly daunting or challenging task.
To make life easier for the aforesaid audience and facilitate an easier understanding of the overall economic environment, the author has chosen a unique approach. Rather than providing information on a host of economic indicators, the author has instead focused exclusively on 21 economic indicators, which he, as a professional economist, has developed and has been using regularly to monitor the economic environment/performance of major economies and the global economy over the years.
Equipped with these indicators, one should be able to assess or analyze the economic environment/performance of various economies and the global economy and rapid changes in the same in a rather pragmatic and expeditious manner, which is important as people are facing ever increasing paucity of time and don’t have the luxury of performing such analysis in a protracted manner.
Sher Mehta, CEO and Chief Economist, Macroeconomics School