EMU: GDP


Fri Mar 06 04:00:00 CST 2015

Consensus Actual Previous
Quarter over Quarter 0.3% 0.3% 0.2%
Year over Year 0.9% 0.9% 0.8%

Highlights
The Eurozone economy expanded an unrevised 0.3 percent on the quarter in the October-December period. The unchanged quarterly gain was mirrored in the yearly rate which was also unrevised at 0.9 percent.

The first look at the GDP expenditure components offered little to get excited about. Private consumption was up on the quarter but only by a relatively modest 0.4 percent, a rate matched by gross fixed capital formation. The former followed a slightly larger 0.5 percent increase in the previous period but the latter was an improvement on a zero rate last time. Government consumption was again 0.2 percent higher, in line with its rise in every other quarter of the year. However, inventory accumulation subtracted 0.2 percentage points from the quarterly change in real GDP, its second negative contribution in a row.

Headline growth was supported by overseas demand and exports followed a 1.5 percent increase in the third quarter with a 0.8 percent advance. With imports rising only 0.4 percent, net exports added a very useful 0.2 percentage points.

Regionally growth amongst the larger four member states was confirmed at their respective flash estimates. These showed quarterly rises in total output of 0.1 percent in France and 0.7 percent in both Germany and Spain. Italy was unchanged at 0.0 percent. Elsewhere Estonia posted a 1.1 percent rate, the strongest in the Eurozone, while at the other end of the performance spectrum Cyprus contracted a further 0.7 percent or more than double the third quarter pace.

With the ECB's QE programme about to start in earnest next week the fourth quarter national accounts are unlikely to have any major impact on financial markets (especially in the wake of the relative buoyancy of more recent economic indicators). Still, with private sector final demand at least expanding for a second successive quarter the key GDP components suggest that the recovery, albeit only a sluggish one, was at least becoming more firmly entrenched at year-end.

Definition
Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. The data are an aggregate for the 17 countries that currently comprise the Eurozone. This number is scheduled to increase over coming years.

Description
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 a treasure-trove of 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, and price (inflation) indexes 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 typically lead to increased demand for a local currency. However, inflationary pressures can put downside pressure on a currency regardless of growth. For example, if inflation remains above the ECB’s near-2 percent target for long enough, worries about the impact of lost competitiveness on the merchandise trade balance could prompt investors to switch to an alternative currency.