DE: GDP Flash

Wed May 13 01:00:00 CDT 2015

Consensus Actual Previous
Quarter over Quarter 0.5% 0.3% 0.7%
Year over Year 1.2% 1.0% 1.4%

The economy expanded for a third consecutive quarter in the period just ended. However, a 0.3 percent increase in total output versus October-December was less than half the fourth quarter's unrevised rate and only enough to see annual workday adjusted growth slide from 1.4 percent to 1.0 percent. Unadjusted the yearly rise in real GDP was 1.1 percent, down from 1.6 percent last time.

In the absence of any details on the GDP expenditure components the FSO simply pointed out that the quarterly increase in total output came about as a result of stronger domestic demand. Hence, household and general government consumption as well as fixed capital formation in construction and machinery and equipment saw solid gains. However, headline growth was hit by worsening net trade as a modest increase in exports was easily more than matched by imports.

As such it looks as if the economy performed rather better than first appearances might suggest last quarter. Still, and in contrast to the comparable French report, the data make for downside risk to flash Eurozone real GDP due for release shortly. Early business and consumer surveys have pointed to some loss of economic momentum this quarter and a 1.5 percent quarterly contraction in manufacturing orders at the start of the year hard bodes well. Fortunately, services appear to be performing well and the much more competitive level of the euro should be a bonus. The economy may not excite this quarter but neither should it raise any doubts about the sustainability of the recovery.

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.