|Quarter over Quarter||0.4%||0.5%||0.2%|
|Year over Year||1.0%||1.3%||1.3%|
The French economy provisionally expanded at a 0.5 percent quarterly rate in the January-March period. This was above market expectations and the largest increase in total output since the first quarter of 2015. However, following an unrevised 0.3 percent rise in the previous period, annual growth still dipped from 1.4 percent to 1.3 percent.
Nonetheless, the headline data masked an even more robust gain in domestic demand. Hence, household consumption jumped an impressive 1.2 percent on the quarter and business investment was up fully 2.1 percent. Public spending increased 0.4 percent leaving just residential investment, which contracted yet again (2.7 percent,) to undermine what was otherwise an impressive performance by the main components of domestic demand. In sum, final domestic demand added a very respectable 0.9 percentage points to the quarterly change in GDP.
Accordingly, growth was held in check elsewhere, namely business inventories and net foreign trade, both of which subtracted 0.2 percentage points. Within the latter, exports slipped 0.2 percent versus the fourth quarter while imports rose 0.5 percent.
The buoyancy of household consumption will in part reflect a bounce back from a fourth quarter drop caused by the November terrorist attacks. Even so, the increase was surprisingly strong. That said, consumer confidence has lost ground in recent months so the first quarter jump may be followed by a significant slowdown this quarter. Still, the overall impression of today's report is surprisingly positive and will certainly cheer policymakers at home and the ECB alike.
Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. The flash estimate, which will be released about 45 days after the quarter's end, is an effort to speed up delivery of key economic data. In contrast to most flash releases, the French version provides an early 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 anaemic 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.