FR: GDP Flash

Fri Feb 13 00:30:00 CST 2015

Consensus Actual Previous
Quarter over Quarter 0.1% 0.1% 0.3%
Year over Year 0.3% 0.2% 0.4%

The French economy provisionally expanded at a quarterly rate of just 0.1 percent in the final three months of 2014. The increase followed an unrevised 0.3 percent rate in the third quarter and saw annual growth slip by a couple of ticks to just 0.2 percent. The results were in line with market expectations.

Final domestic demand added only 0.1 percentage points to the quarterly change in total output as a very modest 0.2 percent advance in household consumption and a 0.4 percent gain in government spending were almost offset by a 0.5 percent decline in gross fixed capital formation, its fourth drop in as many quarters. Particularly disappointing was a renewed fall in business investment having stabilised in the previous period but a second successive 1.5 percent slump in household investment was just as worrying. Inventories subtracted 0.2 percentage points after a 0.3 percentage point contribution in July-September.

A slight improvement in the real trade balance reflected a 2.3 percent jump in exports that outpaced a 1.7 percent increase in imports and added 0.1 percentage points to quarterly growth.

Today's hardly surprising figures confirm a sluggish end to 2014 by the French economy and in themselves offer little reason for cheer about 2015. On a positive note, excluding stocks, domestic demand accounted for the entire increase in real GDP in calendar 2014. However, at just 0.4 percent it was woefully small due to a cautious consumer sector and continued weakness in fixed investment which fell at double the pace of 2013. There have been a few brighter spots in the monthly economic data of late but 2015 will not be an easy year for French policymakers.

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. In contrast to most flash releases, the French version provides an early 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 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.