Tue Jun 09 04:00:00 CDT 2015

Consensus Actual Previous
Quarter over Quarter 0.4% 0.4% 0.3%
Year over Year 1.0% 1.0% 0.9%

The Eurozone economy expanded at an unrevised quarterly rate of 0.4 percent in the January-March period. Annual growth was also unrevised at 1.0 percent.

The first look at the key GDP expenditure components makes for moderately optimistic reading. Hence, private consumption was up 0.3 percent on the quarter, a tick faster than last time, while gross fixed capital formation rose 0.2 percent, also 0.1 percentage points above its fourth quarter pace. Government consumption followed zero growth with a 0.1 percent advance and business inventories added 0.1 percentage points to the quarterly change in total output after a zero contribution in October-December.

In contrast to the fourth quarter, external trade dampened growth, subtracting 0.2 percentage points from the quarterly rate having added 0.1 percentage points previously.

Regionally, amongst the larger four member states, France grew 0.6 percent, Germany and Italy both 0.3 percent and Spain an impressive 0.9 percent. The best performing country was Cyprus (1.6 percent and so now out of recession) while the worst was Lithuania (minus 0.6 percent) ahead of Estonia (minus 0.3 percent). Greece (minus 0.2 percent) fell back into recession to join Finland (minus 0.1 percent).

Overall the GDP details contain few surprises. Crucially, the recovery in private sector domestic demand is accelerating, but only gradually and from only a minimal rate in the fourth quarter. Accordingly, there is nothing here to encourage the ECB to contemplate tapering its QE programme and the deterioration in net exports offers a reminder of the importance of maintaining a weak exchange rate for as long as possible.

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 19 countries that currently comprise the Eurozone. This number is scheduled to increase over coming years.

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.