CH: Gross Domestic Product

Wed Mar 02 00:45:00 CST 2016

Consensus Actual Previous Revised
GDP Q/Q (SA) 0.1 0.4 0.0 -0.1
GDP Y/Y (NSA) 0.2 0.4 0.8

In terms of the headline data, the economy comfortably outperformed expectations in the fourth quarter. A 0.4 percent rise in total output versus the July-September period was the strongest since the fourth quarter of 2014 although with the third quarter revised down to show a 0.1 percent decline, annual growth still halved to also 0.4 percent. For calendar 2015, real GDP grew 0.9 percent, down from 1.9 percent in 2014, and falling prices saw its nominal counterpart shrink 0.4 percent, its first decline since 2009.

In fact real private sector final domestic demand struggled as household consumption expanded just 0.1 percent on the quarter and investment in equipment fell 0.9 percent. With construction up only 0.1 percent, it was left to government consumption, which rose 0.6 percent, to do most of the work. Moreover, growth would have looked significantly worse but for a 0.7 percentage point boost from inventories.

Meantime, net foreign trade had a negative impact despite a solid 2.9 percent rise in exports of goods (excluding non-monetary gold and valuables) as imports were up fully 4.2 percent. Services also subtracted as a 3.2 percent decline in exports dwarfed a 0.3 percent dip in imports.

Inevitably, inflation remained firmly in negative territory and the GDP deflator dropped 1.1 percent versus the first quarter of 2015. This was actually an improvement on the previous period's minus 1.4 percent rate but, ominously, the annual decrease in the household consumption deflator steepened from 1.2 percent to 1.4 percent.

In sum, the fourth quarter national accounts appear superficially positive but the headline figures mask weak domestic demand and probable excessive inventory accumulation. The strength of the CHF is still hitting Swiss exporters, although perhaps not as badly as might have been expected, and price trends remain worryingly negative. Against this backdrop, additional SNB easing is a real possibility and the central bank may yet be forced to act should the ECB loosen its stance again next week.

Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. The first estimate includes the main GDP expenditure components as well as a breakdown of total output in terms of the major production and service sectors.

GDP is the all-inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Investors in the stock market like to see healthy economic growth because robust business activity translates to higher corporate profits. Bond investors are more highly sensitive to inflation and robust economic activity could potentially pave the road to inflation. By tracking economic data such as GDP, investors will know what the economic backdrop is for these markets and their portfolios.

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. 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.