DE: GDP Flash

Fri Nov 13 01:00:00 CST 2015

Consensus Actual Previous
Quarter over Quarter 0.4% 0.3% 0.4%
Year over Year 1.9% 1.7% 1.6%

The economic recovery took another, but less than convincing, step forward last quarter. Following an unrevised 0.4 percent increase in April-June, a 0.3 percent quarterly rise in total output was at the weaker end of market expectations and matched the smallest gain since the end of 2014. Annual workday adjusted growth was 1.7 percent, only marginally higher than the 1.6 percent rate posted last time, while the unadjusted yearly change was up 0.2 percentage points at 1.8 percent.

No GDP expenditure components are released in the flash report although the FSO indicated positive quarterly contributions from household spending and the government sector but a small decline in fixed investment. A strong rise in imports apparently lay behind a probable negative impact from net foreign trade. Further details will be published on 24th November.

In the light of some recent downside surprises from the goods producing sector today's headline data should not come as much of a shock. In general, the economy has had at best only a moderately respectable 2015 to date and disappointingly the recovery has failed to gain the momentum anticipated earlier. Moreover, the fourth quarter looks likely to maintain this pattern.

There is now a slightly greater chance that the Eurozone third quarter flash GDP estimate due shortly will undershoot expectations. However, whether true or not, speculation about more QE and a rate cut from the ECB in December has just been given another boost.

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. No figures on the GDP expenditure components are available in the flash estimate although some qualitative information is usually provided.

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.