IT: GDP


Fri Nov 13 03:00:00 CST 2015

Consensus Actual Previous Revised
Quarter over Quarter 0.3% 0.2% 0.3%
Year over Year 1.0% 0.9% 0.7% 0.6%

Highlights
Real GDP provisionally expanded a weaker than expected 0.2 percent on the quarter in the July-September period. The increase followed an unrevised 0.3 percent advance in the second quarter and put annual workday adjusted growth at 0.9 percent, up from 0.6 percent last time. The economy has now registered positive quarterly growth for three consecutive quarters but total output is still nearly 9 percent short of its pre-crisis peak in the first quarter of 2008.

The only details provided by Istat signalled that the latest increase in GDP was broad-based with gains reported in industry and services as well as agriculture. Net exports made a negative contribution so the implication is that domestic demand built on its increase achieved in the previous quarter.

Economic data in recent months have suggested that the Italian recovery is starting to pick up a little steam and to this end, the slowdown in GDP growth last quarter is rather disappointing. However, if, as seems probable, the deceleration is essentially attributable to weaker net external trade, the upswing may yet be on a rather firmer footing than first appearances suggest.

Nonetheless, with both Germany and now Italy underperforming expectations, the Eurozone third quarter rate looks increasingly likely to be on the soft side of the market consensus.

Definition
Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy.

Description
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.