Fri Feb 13 03:00:00 CST 2015

Consensus Actual Previous Revised
Quarter over Quarter -0.1% 0.0% -0.1%
Year over Year -0.5% -0.3% -0.5% -0.4%

The recession provisionally came to a less than convincing end last quarter as real GDP stagnated at its level of the previous period. The outturn, which was marginally firmer than expected, put workday adjusted total output 0.3 percent below its level in the same period of 2013, a minor improvement on the shallower revised 0.4 percent drop recorded in the third quarter. Even so, the economy still contracted over calendar 2014 as total output declined 0.4 percent.

The only additional information provided by Istat indicated that the fourth quarter would have seen another fall in real GDP but for growth in services which offset fresh declines in both the goods producing sector and agriculture.

The Italian economy has not seen positive quarterly growth since the second quarter of 2011 during which period real GDP has shrunk by 5 percent. Indeed, compared with it pre-Great Recession peak, total output has slumped a remarkable 9.4 percent. PM Renzi has made progress with his programme of political and economic reform but the pace has been slow and nothing close to that promised before his election last May. Recent monthly economic data have hinted that the worst is over but 2015 will still be another very challenging year for the national economy.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy.

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.