DE: GDP Flash

Fri Feb 13 01:00:00 CST 2015

Consensus Actual Previous
Quarter over Quarter 0.3% 0.7% 0.1%
Year over Year 1.1% 1.4% 1.2%

German GDP grew at a quarterly rate of 0.7 percent in the flash report for the period just ended. The increase, which was more than double market expectations and the strongest since the first quarter of 2014, followed an unrevised 0.1 percent gain in the previous period and lifted annual workday adjusted growth by 0.2 percentage points to 1.4 percent. The unadjusted yearly change was 1.6 percent, up from 1.2 percent last time.

No details of the GDP expenditure components are provided in the initial report but the FSO did indicate that domestic demand was largely responsible for the quarterly increase in total output. Household consumption as well as construction and investment in machinery and equipment all made positive contributions. Exports similarly had a good quarter but gains here were essentially offset by higher imports.

The surprising buoyancy of the German economy at year-end inevitably makes for upside risk to the flash Eurozone GDP data due later this morning. However, while positive news for recovery prospects in other EMU member states, the German performance will also leave the Bundesbank all the more unhappy with the ECB's decision last month to launch QE. It similarly underscores a dangerously large, and still widening, performance gap within the Eurozone core.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. The flash estimate, which will be released about 45 days after the quarter's end, is an effort to speed up delivery of key economic data. No figures on the GDP expenditure components are available in the flash estimate although some qualitative information is usually provided.

GDP is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Stock market Investors like to see healthy economic growth because robust business activity translates to higher corporate profits. The GDP report contains information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. These data, which follow the international classification system (SNA93), are readily comparable to other industrialized countries. GDP components such as consumer spending, business and residential investment illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.

Each financial market reacts differently to GDP data because of their focus. For example, equity market participants cheer healthy economic growth because it improves the corporate profit outlook while weak growth generally means anemic earnings. Equities generally drop on disappointing growth and climb on good growth prospects.

Bond or fixed income markets are contrarians. They prefer weak growth so that there is less of a chance of higher central bank interest rates and inflation. When GDP growth is poor or negative it indicates anaemic or negative economic activity. Bond prices will rise and interest rates will fall. When growth is positive and good, interest rates will be higher and bond prices lower. Currency traders prefer healthy growth and higher interest rates. Both lead to increased demand for a local currency. However, inflationary pressures put pressure on a currency regardless of growth.