Investors can turn to many different sources of information when setting up trades, and some forex traders like to harness top economic indicators to determine what they will do. Germany, Europe's largest economy, is viewed by many as a key player in both the eurozone and the euro, so some traders like to investigate business conditions in this country when developing their strategies.
Some more generalised background information on the nation may also be helpful, as it can assist investors in their evaluation. Germany's economy benefits from high standards for public finance, free access to trade with other countries and substantial labor flexibility.
Sources Of Information
To learn more about economic conditions in the European nation, traders can turn to many different sources. This article will briefly review some of them:
The Federal Statistical Office of Germany, which is known in German as Statistisches Bundesamt or the shorter version Destatis, provides information on both GDP and other key measures in both English and German. The organisation has more than 2,200 employees in three different locations.
The World Bank, in addition to offering developing countries loans, provides economic data on many different countries. By visiting the World Bank website, traders can access in-depth information on Germany including its current account balance and exports of goods and services.
The Organisation For Economic Co-operation And Development
The OECD's mission is to "promote policies that will improve the economic and social well-being of people around the world." It provides both comprehensive data and economic forecast summaries for different nations.
Top Economic Indicators
While the aforementioned organisations provide data on a wide range of indicators, some of these measures are relied on more widely than others. Certain indicators, such as inflation and the unemployment rate, frequently make the headlines. By focusing on these barometers, investors can better gauge the strength of nations such as Germany.
Gross Domestic Product
The size of different economies is usually measured in GDP. For example, if an investor wants to compare the strength of the U.S. economy to that of Germany, he can use GDP for a quick snapshot of which nation has greater economic output. GDP is calculated by determining the final market value of all goods and services created by residents in a specific period.
If traders want to gather information on German GDP, they can turn to numerous sources, including those noted above.
There are some important considerations that anyone relying on GDP should be aware of. For starters, there is both real GDP and nominal GDP. While real GDP is adjusted for inflation, nominal GDP is not. If traders want to look into Germany's economic performance over a number of years, doing so may be far easier with real GDP, as the measure will account for any increases in the price level.
Investors should know that German GDP sometimes experiences revisions. For example, this occurred when the European Union implemented a new accounting framework called The European System of National and Regional Accounts. Because of this new methodology, which the EU adopted on Sept. 1, 2014, Germany's annual nominal GDP rose an average of 3% from the previous level for the years between 1991 and 2013.. This increase resulted from capital formation now including research and development.
It is also worth noting that Germany's economy is a key component of the 19-nation eurozone, accounting for almost 29% of the region's GDP.
GDP Per Capita
One way investors can get a quick sense of how well the residents of a nation are doing economically is by looking at GDP per capita. To calculate this, economists simply take a country's output and divide it by the population. By looking into Germany's GDP per capita, traders can receive insight into residents' spending power.
Labor Market Statistics
Another method investors can use to evaluate the strength of German business conditions is labor market statistics, such as the jobless rate and labor force. The Federal Employment Agency ("FEA") regularly releases this information and updates it on a monthly basis after conducting surveys. When seeking a helpful indicator of how many people in Germany are unemployed, many rely on the number of registered unemployed, a figure published by the FEA.
The Federal Statistical Office ("FSO") regularly releases information on German inflation. The government agency calculates the consumer price index, the benchmark gauge of inflation, based on a market basket of goods and services, which it publishes on its website.
The government agency also supplies data on the producer price index, which represents the prices makers of goods and services pay for their inputs. The PPI measures price changes incurred by the seller. Many follow the PPI, because the index can help grant market observers a sense of future increases in CPI. If the PPI is high, sellers will generally pass these expenses on to the buyer.
Balance of Trade
The FSO reports Germany's balance of trade, which represents the difference between its exports and imports. The nation's average balance of trade has been positive, meaning that exports surpassed imports, between 1950 and 2015. This surplus reached €22.5 billion in October 2015, compared to €21.5 billion at the same time in 2014. During that period, exports climbed 3.3% and imports rose 3%.
The nation has been able to regularly generate trade surpluses by enjoying strong exports of automobiles and other types of machinery. In addition, Germany exports items such as vehicle parts and metals, fuel and electronic devices.
Balance of Payments
A country's balance of payments provides insight into how much money is flowing into the nation relative to the amount that is flowing out. Some traders use this information in hopes of getting a better sense of how the country's currency will fare relative to others.
In Germany, the Deutsche Bundesbank produces a monthly report on this particular measure, detailing the transactions that take place between residents and non-residents.
Benchmark Interest Rate
Another economic indicator that can prove helpful to investors is the nation's benchmark interest rate. Because Germany is a member of the eurozone and uses the common currency, the European Central Bank dictates the nation's benchmark interest rate. The eurozone's benchmark rate averaged 2.26% between 1998 and 2015, reaching an all-time low of 0.05% in September 2014 and a record high of 4.75% in October 2000.
Some traders gather data on a nation's retail sales when evaluating economic conditions in the jurisdiction. Investors interested in gathering such figures for Germany can obtain them from the FSO. Retail sales data is at least somewhat important to the nation's broader economy. These sales can fluctuate substantially between seasons, months and years.
Consumer spending is an indicator that frequently catches the eye of investors, as this type of activity often plays a crucial role in a country's business conditions. In Germany, the FSO releases monthly reports on the nation's consumer spending. This measure, which averaged €344.05 billion between 1991 and 2015, fell to an all-time low of €290.41 billion during the third quarter of 1991 and a record high of €384.17 billion in the third quarter of 2015.
German Consumer Confidence
The measure that market observers rely on to gauge the sentiment of consumers in Germany is the GfK Consumer climate Indicator, which market research firm GfK prepares by asking more than 2,000 people who are at least 14 years of age about their savings, income expectations and likelihood to purchase goods and services. The responses these individuals supply can range between 100 and minus 100, with zero representing the long-term average.
Between 2001 and the forward-looking index of January 2016, the measure averaged 5.37. The index reached as low as minus 3.50 in March 2003 and as high as 16.80 in March 2001. The GfK announced Dec. 22, 2015 that its January 2016 forward-looking index was 9.4, up from 9.3 in December. This most recent study cited a sustained, high level of willingness to buy. The research also noted that respondents' expectations of income and the broader economy had risen.
With the top economic indicators listed above, as well as the preferred sources of information, traders can be better equipped when it comes to evaluating different nations for potential forex trades.
Any opinions, news, research, analyses, prices, other information, or links to third-party sites are provided as general market commentary and do not constitute investment advice. FXCM will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…