5 Indicators to Help You Understand Where the Economy Is Heading

Published May 20th, 2020 - 03:00 GMT
Symptoms of a Financial Crisis and Signs of Recovery to Keep an Eye At
Several numbers can help us know where the global economy is heading. (Shutterstock: Light And Dark Studio)

There is no doubt that the first quarter of 2020 has been pretty disastrous in almost every sector and every country in the world.

During the first few weeks of lockdowns triggered by COVID-19, stock markets witnessed several "red" days, with lots of companies slashing their stock values. Oil prices sank into historic lows diving into negative territory. Japan's economy has reported a 35% shrinking rate between Jan and March. EU countries are talking about a 3.8% drop in GDP. 

Closures, stay-at-home orders, and flight-bans have all shook the global economy in the span of a few weeks, alarming the whole world of the possibility of a long-term recession. Even more terrifying, some financial experts have been raising the red flag over a potential 21st century Great Depression.

But aren't many countries reopening nowadays? Doesn't this mean that the economy is on its way to a speedy recovery? Are companies hiring staff again?

I wish I knew the answer to these questions, as historical incidents proved that the economic tendencies are very hard to predict. But we can for sure keep a close eye on available data until we figure the upcoming months out.

Just as we watched the economy get hit by paying attention to certain indicators, we can watch how it reacts to the post-Coronavirus development.

Not that the virus is fully controlled yet, neither do we know of an effective drug or vaccine until this very moment, but most nations are slowly and carefully beginning to resume operations in most business sectors, which is starting to show some results.

But, where do we look to know how the global economy is doing? What indicators should we observe? 

1. Stock Indexes

Just as they were the very first to suffer the Coronavirus blow during the very early days of March, the stock markets will be a very important sign of whether the economy is recovering or struggling for a rebound.

It's important to keep an eye on local, regional, and international stock exchanges because, in such a globalized world, they all seem to affect each other almost immediately.

Also, if major companies could compensate for past losses by strong green indicators, daily operations and production rates will consequently accelerate.

Only two days ago, the New York Stock Exchange rose by more than 4% despite a 12% one day crash last March.

2. Oil Prices 

Remember how April 20th catastrophic crude oil free fall recording -$54 was a sign that the economy couldn't get worse? Higher oil prices can now point to the other way.

This week, crude oil prices have surged by almost 13% compared to the last two months, expressing growing hopes of increasing global demand as transportation and air flights begin to resume work.

3. Unemployment Rates

One of the most scary signs of a financial meltdown has always been massive layoffs. Millions of people have lost their jobs since COVID-19 was announced a global pandemic, resulting in increased poverty rates and social instability worldwide.

In the US, more than 20 million people have filed for unemployment support checks since March. In the UK, jobless rates have fallen by 4% during 2020 so far. 

In the GCC, and despite the absence of official data on 2020 unemployment rates so far, many major companies have had to end workers' contracts; pressured by decisions to halt operations and by major losses.

This is also strongly connected to consumers' behaviors as people turn to their savings to make up for months of no paychecks, affecting retail sales.

4. Quarterly Results

With long-term economic shake-ups, it's easy to trace changes in the economy by looking at quarterly reports, whether released by private companies or governments. 

Businesses that mostly reported negative results during the first quarter of 2020 are looking forward to achieving better results during the second one, during which work continues.

Comparing these numbers and keeping operations' restrictions in mind, can tell us whether controlling the virus will mean a quick recovery in the markets or not.

5. GDP Growth

Or in other words, the gross domestic product measure. According to Investopedia, the GDP is one of the most common indicators used to track the health of a nation's economy, and it guides economists to understand whether an economy is growing or experiencing a recession.

The GDP can be traced either monthly or annually, providing a comprehensive and very accurate description of how a certain economy is doing.

For example, Fitch Ratings have projected that "most GCC sovereigns to post fiscal deficits of 15%-25% of GDP in 2020," following sharp drops in oil prices, a major export in all seven GCC countries.

By keeping an eye on all these indicators, we can further understand how long the economic recessions is going to last, how much it will affect our world, and how deep the changes to follow will be.

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