The prices of securities are greatly influenced by prevailing economic conditions. Interest rates, inflation, economic growth and current world events are just a few of the forces that effect security prices. It is important that investors are able to interpret various economic events and understand how they will impact security prices now and in the future Economic growth is perhaps the greatest indicator that influences the markets. It measures the annual domestic production of a country. Growth rates should be interpreted relative to the country's previous growth rates as well as the entire worlds growth rate as a whole.
Economists can use economic growth data to predict trends in other economic factors.
If economic growth is high, there is a greater risk of high inflation. Inflation in an economic setting is considered normal for an economy and moderate inflation is considered acceptable in most industrialized countries. Inflation that runs too high will cause a country's currency to be devalued relative to others in the world. This causes a country to lose economic power relative to other countries. Thus, federal governments use fiscal and monetary policy to control the economy.