EMU: GDP


Tue Dec 08 04:00:00 CST 2015

Consensus Actual Previous
Quarter over Quarter 0.3% 0.3% 0.4%
Year over Year 1.6% 1.6% 1.5%

Highlights
There were no revisions to the flash GDP data for the third quarter. Total output was up 0.3 percent versus the previous period and 1.6 percent on the year.

The first look at the full national accounts showed little real change in the components of private sector domestic demand. Hence, private consumption was up 0.4 percent after a 0.3 percent rise in the second quarter while gross fixed capital formation was flat following a 0.1 percent advance last time. Government consumption increased 0.6 percent, up from 0.3 percent previously. Inventories reversed the 0.2 percentage point hit that they had on second quarter growth.

Headline growth would have been 0.3 percentage points better off but for the negative impact of the external balance within which exports rose 0.2 percent and imports 0.9 percent.

Regionally, the best performer was Malta where GDP rose a full 1.1 percent on the quarter ahead of Latvia (1.0 percent) and Slovakia (0.9 percent). At the other end of the spectrum, Greece contracted fully 0.9 percent while Estonia and Finland were both down 0.5 percent.


With the ECB having only just eased its monetary stance last week, today's data are unlikely to have much impact on financial markets. Still, the general picture remains one of sluggish, if improving, domestic demand for which growth is still too slow to generate any real upside pressure on consumer prices. So far the survey data have pointed to a probable gentle acceleration in real GDP this quarter but the economy will need to do a lot better in 2016 if underlying inflation is to get anywhere close to the 2 percent mark.

Definition
Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. The data are an aggregate for the 19 countries that currently comprise the Eurozone. This number is scheduled to increase over coming years.

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 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.

Currency traders prefer healthy growth and higher interest rates. Both typically lead to increased demand for a local currency. However, inflationary pressures can put downside pressure on a currency regardless of growth. For example, if inflation remains above the ECB’s near-2 percent target for long enough, worries about the impact of lost competitiveness on the merchandise trade balance could prompt investors to switch to an alternative currency.