Tue Dec 01 18:30:00 CST 2015

Consensus Actual Previous
Quarter over Quarter 0.8% 0.9% 0.2%
Year over Year 2.4% 2.5% 2.0%

The Australian economy grew more than expected in the third quarter. The data squashed the notion that a slowing China and no commodities boom will inevitably push the country into recession. September quarter gross domestic product was up 0.9 percent on the quarter and 2.5 percent when compared with the same quarter a year ago. The data were just below trend. The major contributions to economic growth this quarter came from exports, with net exports contributing 1.5 percentage points to GDP growth. The growth in exports is reflected by strong growth in mining activity (5.2 percent), bouncing back after the decline in the June quarter. These positive contributions were offset by a decline in total gross fixed capital formation of 4.0 percent, driven by drops in private (down 2.9 percent) and public (down 9.2 percent) investment.

On Tuesday the Reserve Bank of Australia left interest rates at a record low 2 percent and issued a reasonably upbeat statement on the economy. The RBA has already cut rates twice this year, in February and May, to stimulate the economy and in its preceding decision on monetary policy on November 3 the central bank flagged that further rate cuts are possible in the coming months. However, it tempered this by saying the outlook wasn't so bad, despite the impending fall in mining investment.

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.