EMU: GDP Flash

Fri Aug 14 04:00:00 CDT 2015

Consensus Actual Previous
Quarter over Quarter 0.4% 0.3% 0.4%
Year over Year 1.3% 1.2% 1.0%

Eurozone growth slowed in the second quarter with Germany, France and Italy all expanding slightly less than anticipated. Eurozone GDP was up 0.3 percent in the April-June quarter, down from 0.4 percent in the two previous quarters and less than the 0.4 percent median estimate. On the year, GDP was up 1.2 percent, slightly less than the consensus estimate of 1.3 percent.

Eurozone growth was affected by the Greek crisis and the continuing slowdown of Chinese growth. Both factors hit business confidence and partially offset the positives of a weaker euro, cheaper oil prices and rock-bottom interest rates.

Growth stagnated in France and slowed to 0.2 percent in Italy in the second quarter, while advancing slightly to 0.4 percent in Germany. Weaker industrial output in June held back growth in all three countries. Spain was the top-performing big economy in the quarter, advancing by 1.0 percent, while France's flat growth was the weakest performance. In addition to France, Italy and Germany, second quarter growth was also weaker than expected in the Netherlands and in Portugal.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. This preliminary estimate is based on all the available information at the time but while this will include the majority of member states, it usually excludes some where local figures have yet to be compiled.

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.