CH: Gross Domestic Product

Fri Dec 02 00:45:00 CST 2016

Consensus Actual Previous
GDP Q/Q (SA) 0.3 0.0 0.6
GDP Y/Y (NSA) 1.8 1.3 2.0

Economic growth unexpectedly ground to a halt in July-September. Following an unrevised (and misleadingly robust) 0.6 percent quarterly rise in the previous period, total output was only unchanged, its weakest performance since it last contracted back in the first quarter of 2015. Annual growth was 1.3 percent, down from 2.0 percent.

Stagnation reflected a disappointingly small increase in domestic demand and a negative contribution from net external trade. In particular, private consumption was up just 0.1 percent versus the second quarter when it showed no growth at all. Investment held up rather better with equipment and software as well as construction gaining 0.5 percent but government consumption was down 0.1 percent. Consequently, the headline data would have looked worse but for a 0.2 percentage point contribution from inventory accumulation.

Exports of goods excluding valuables dropped 0.2 percent for a second successive quarter while their import counterpart increased 0.2 percent. Exports of services were off 0.8 percent and imports of services were flat.

There was also gloomy news on inflation as the GDP deflator fell 0.6 percent on the year. This was a tick steeper than in the second quarter and driven by falls in the deflators for household consumption, construction investment and exports.

Some slowdown in economic activity was always on the cards last quarter but zero growth was surprisingly weak. This will obviously worry the SNB, especially with prices so soft. Fortunately, the fourth quarter seems to have started promisingly and total output should see some pick-up. Nonetheless, SNB policy looks all the more likely to stay highly accommodative and CHF appreciation will continue to be strongly resisted.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. There is no flash estimate and the first report is typically not issued until around sixty days after the end of the reference quarter. This has the advantage of limiting the size of any future revision and also accommodates the inclusion of 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. 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.