|Quarter over Quarter||0.4%||0.2%||0.9%|
|Year over Year||2.2%||2.0%||2.3%|
Second quarter GDP increased a less than expected 0.2 percent on the quarter analysts expected an increase of 0.4 percent. From a year ago, GDP was up 2.0 percent, also below expectations. Reduced mining and construction activity, coupled with a decline in exports were the main factors in the slowdown in economic growth. Australia has not experienced a recession since 1991.
Positive contributions to GDP growth came from the domestic final demand components of household and government consumption. The financial, transport and health industries each contributed 0.1 percentage points to GDP growth. Gross fixed capital formation was up 0.4 percent on the quarter but sank 3.3 percent from a year ago. Final consumption expenditures were up 0.9 percent and 2.9 percent from a year ago.
A lower currency is helping Australia to weather the storm as falling commodity prices weigh on exports. Demand from China, its largest trading partner, is expected to slow and there's a glut of iron ore, the country's top export, as the top producers ship it out at record amounts to make up for falling prices.
Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy.
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.
Register for regular updates here and manage your email preferences.