Macroeconomic analysis is the study of different variables that allow analyzing the global situation of a country, economy or market. In this way, it seeks to determine what investment decision to make or what economic policy to implement.
That is, macroeconomic analysis studies a set of indicators that allow a general vision of an entire economy. It can be done by a company, an investor or those responsible for public policies.
Some of the variables that can be studied in the macroeconomic analysis are the Gross Domestic Product (GDP), inflation or unemployment, among others that we will detail later.
Macroeconomic analysis is highly relevant, as it allows us to predict whether an economy will face a situation of growth, slowdown or stagnation.
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If, for example, posing a very generic case, lower economic growth is observed and the situation is not expected to reverse, this could mean that consumption will also slow down. Therefore, a company probably has no incentive to invest to increase its production capacity.
In that sense, we must take into account that countries go through economic cycles that are phases that the economy goes through and that they happen in order. This, until reaching the final phase and then the economic cycle repeats itself.
Broadly speaking, in bullish phases the economy improves, generating employment and increasing consumption, while in bearish phases, the opposite occurs.
Thus, depending on the economic cycle that the country is going through, the Government will take measures of fiscal policy and/or expansionary or contractionary monetary policy.
Variables studied by macroeconomic analysis
The following variables are studied in the macroeconomic analysis
- Gross Domestic Product (GDP): It is perhaps the most popular macroeconomic variable. It measures the level of production in an economy, in a certain period of time.
- Inflation: It is a general increase in the prices of goods and services in an economy. This, measured for a specific term. It should be clarified that, although inflation is often talked about more, since it affects the purchasing power of consumers, there is also the opposite phenomenon, deflation. This is the decrease in prices and, although it might seem like a “good” thing at first glance, since consumers benefit, it is unfavorable for companies, since they receive less income for their products and/or services.
- Employment: Indicators such as the unemployment rate are usually observed, which is calculated taking into account those people of working age not only who are unemployed, but who are looking for one. This group is divided into the active population, that is, the employed plus the unemployed.
- Monetary aggregates: They are the different measures of the concept of money. Thus, we find different aggregates, from those that include only the most liquid assets, that is, only current assets, to other aggregates that consider financial instruments with short-term maturities.
The macroeconomic analysis, in the field of investments, is part of the fundamental analysis. The latter seeks to determine the theoretical price of a security or financial asset by studying those variables that influence its value.
Thus, among the variables that can impact the value of a financial instrument, are the macroeconomic ones. A slowdown in GDP could affect employment and consumption, reducing, for example, the expected level of sales of a company. Furthermore, suppose the company sells non-commodity goods, so their demand may fall in the face of lower disposable income from the public. Consequently, the value of the company and, therefore, the price of its shares will decrease.
It should be remembered, at this point, that in the valuation of companies, perhaps the most famous method is the one that consists of discounting the future money flows that the analyzed company will generate at present value.