Tue Feb 24 01:00:00 CST 2015

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

Economic output was up an unrevised quarterly 0.7 percent in October-December. Annual workday and unadjusted yearly GDP growth rates similarly matched their flash estimates of 1.4 percent and 1.6 percent respectively.

Total domestic demand expanded a reasonably respectable 0.5 percent versus the third quarter to more than fully reverse that period's 0.4 percent decline. Within this, household consumption rose a healthy 0.8 percent for a second successive quarter and gross capital investment was up 1.2 percent with construction investment gaining 2.1 percent and equipment investment 0.4 percent. Government expenditures followed a 0.6 percent advance with a much more modest 0.2 percent increase while inventories subtracted 0.2 percentage points from the quarterly change in total output.

Net exports boosted quarterly growth by 0.2 percentage points as export volumes rose 1.3 percent, down from the third quarter's 2.0 percent rate but still ahead of the 1.0 percent increase recorded by imports.

The first proper look at the national accounts suggests that the German economy closed out 2014 in decent shape. In particular, the key private sector final demand component boosted quarterly growth by 0.6 percentage points having added just 0.2 percentage points in July-September thanks to another solid performance by household consumption. Fixed investment could have been stronger but in general the balance of demand left a decent platform for economic expansion in 2015.

Even so, many other Eurozone countries will be hoping that the region's largest member will provide more of a lift to their recovery prospects this year and, to this end, will not want to see the slide in the euro being reversed.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. The second estimate follows the release of the flash report and provides the first look at the GDP expenditure components.

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 anemic 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.