EMU: GDP Flash

Fri Apr 29 04:00:00 CDT 2016

Consensus Actual Previous
Quarter over Quarter 0.4% 0.6% 0.3%
Year over Year 1.4% 1.6% 1.5%

The new preliminary flash estimate of the Eurozone economy showed quarterly growth of 0.6 percent at the start of the year. The outturn, which was significantly stronger than expected, equalled the best performance since the first quarter of 2011 but only left the annual rate of expansion unchanged at 1.6 percent. The fourth quarter data were unrevised.

Without any of the GDP expenditure components (not available in this release) it is difficult to determine how much of the first quarter bounce was attributable to domestic demand. Indeed, it may that inventories were an important factor. Still, the headline figures should help to cheer ECB policymakers in the wake of an unexpected drop in April inflation deeper into negative territory (see today's calendar entry).

Note that this and future preliminary flash reports will only provide growth rates for the EMU and EU aggregates; Eurostat will publish data for the member states' in the 'final' flash estimate release due on May 13th. However, national statistics already available showed a 0.5 percent quarterly rise in French GDP and a 0.8 percent quarterly gain in Spain.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. This preliminary estimate is based on all the available information at the time but while this will include the majority of member states, it usually excludes some where local figures have yet to be compiled.

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.