Tue Nov 24 01:00:00 CST 2015

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

Economic growth was unrevised in the first full look at the national accounts last quarter. A 0.3 percent increase in total output versus April-June matched the flash estimate and also confirmed the previously reported 1.7 percent workday adjusted annual rise. Unadjusted yearly growth was similarly unrevised at 1.8 percent.

Despite the slowdown from a 0.4 percent quarterly increase in the previous period, the GDP expenditure components show a more favourable mix. Hence, domestic demand, which contracted 0.2 percent in the second quarter, rebounded well to boost growth by 0.7 percentage points this time. The turnaround here came largely courtesy of household consumption which rose 0.6 percent and government spending which gained 1.3 percent. Even so, gross capital investment fell a further 0.3 percent after a 0.4 percent drop in the second quarter with equipment investment shrinking 0.8 percent and construction 0.3 percent. Renewed inventory accumulation also contributed 0.2 percentage points.

The other major change was in foreign trade where a 0.2 percent increase in exports was swamped by a 1.1 percent jump in imports. This saw net exports subtract 0.4 percentage points having boosted GDP by some 0.6 percentage points last time.

The pick-up in third quarter domestic demand is important, not just for the German economic outlook but for Eurozone prospects as a whole. The region's largest member state is hardly booming but today's report suggests that the upswing at least has decent traction. That said, consumer confidence, while still historically high, has waned in recent months and the weakness of investment warns that businesses are still cautious. The ECB should not be too unhappy but the likelihood of a looser monetary stance next month should not be impacted by this report.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. The second estimate follows the release of the flash report and provides the first 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 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 lead to increased demand for a local currency. However, inflationary pressures put pressure on a currency regardless of growth.