FR: GDP Flash

Wed May 13 00:30:00 CDT 2015

Consensus Actual Previous
Quarter over Quarter 0.4% 0.6% 0.1%
Year over Year 0.7% 0.7% 0.2%

According to the flash report, the French economy enjoyed its best period since the second quarter of 2013 in the quarter just ended. A 0.6 percent increase in real GDP versus its October-December level was well above market expectation and lifted annual growth by 0.5 percentage points to 0.7 percent.

The preliminary breakdown of the national accounts showed the rise in total output was dominated by household consumption which was up a quarterly 0.8 percent after just a 0.1 percent gain in the previous period. Government consumption rose 0.4 percent but private investment continued to decline, this time by 0.2 percent or half the rate posted last time. Weakness here was again attributable to the housing market and residential investment fell 1.1 percent, its worst performance since the second quarter of 2014.

Meantime, having subtracted 0.3 percentage points from the quarterly change in GDP in the fourth quarter, inventories added fully 0.5 percentage points. This was probably rather more than businesses would have wanted but may say something about improving confidence.

Consequently, headline growth would have been a lot stronger but for a marked deterioration in net exports which, having boosted growth by 0.2 percentage points in the fourth quarter, subtracted 0.5 percentage points at the start of the year. This will not sit well with the French authorities.

Still, notwithstanding a lack of real balance, the first quarter economy comfortably outperformed most expectations and was much stronger than suggested by the monthly PMI surveys. Today's results also make for upside risk to flash Eurozone GDP, due later this morning.

Since March business surveys have painted an equally mixed picture with improvements in both the April Bank of France and INSEE business climate measures contrasting with a fall in the PMI's composite output index to near-stagnation levels. The national central bank's early call on second quarter growth is just a 0.3 percent quarterly rate.

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.