FR: GDP


Fri Dec 23 01:45:00 CST 2016

Consensus Actual Previous
Quarter over Quarter 0.2% 0.2% 0.2%
Year over Year 1.1% 1.0% 1.1%

Highlights
The French economy expanded at an unrevised 0.2 percent quarterly rate in the July-September period. However, earlier revisions saw annual growth nudged a tick weaker to 1.0 percent.

As previously indicated, household consumption was again sluggish, rising just 0.1 percent after a flat performance in the second quarter. Gross fixed capital formation slowed from a 0.4 percent rate to 0.3 percent as a 2.7 percent bounce in business spending was offset by a 0.8 percent slide in residential investment. With public administration showing a 0.4 percent gain, final domestic demand added just 0.2 percentage points to the quarterly change in real GDP, just 0.1 percentage points more than in the previous period.

Growth was further impacted by net external trade where a 0.7 percent increase in exports was swamped by a 2.5 percent surge in imports. This led to a 0.6 percentage point hit that more than reversed the second quarter's 0.5 percentage point contribution. Consequently headline growth would have been significantly softer but for inventory accumulation which added fully 0.6 percentage points.

There is little new in today's report. Nonetheless, the run-up in stocks could be important as it warns that what appears to be a much better period for final domestic demand this quarter may not be fully matched in terms of stronger output.

Definition
Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. Following the release of the flash estimate about four weeks earlier, the second report incorporates additional data to provide a more accurate reading. This is also revised in the final report, published in the third month after the reference quarter.

Description
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 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. 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.