IT: GDP


Wed May 13 03:00:00 CDT 2015

Consensus Actual Previous
Quarter over Quarter 0.2% 0.3% 0.0%
Year over Year -0.2% 0.0% -0.5%

Highlights
The first quarter provisionally saw the Italian economy expand for the first time since the third quarter of 2013. A 0.3 percent quarterly increase in real GDP was slightly stronger than market expectations and, following an unrevised zero rate in the fourth quarter, lifted annual growth from minus 0.5 percent to 0.0 percent, the first non-negative print since the third quarter of 2011.

As is usual with the flash estimate, Istat provided no details of the GDP expenditure components. However, it did indicate that output was up in both industry and agriculture but only flat in services.

The second quarter also looks to have got off to a decent start so it may be that the economy is at long last on the road to a sustainable recovery. However, with domestic demand still very fragile, any upturn will need all the help it can get from overseas markets and to this end policymakers will no doubt be hoping that recent gains by the euro prove only short-lived.

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

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 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.