EMU: GDP Flash

Tue Jan 31 04:00:00 CST 2017

Consensus Actual Previous
Quarter over Quarter 0.4% 0.5% 0.3%
Year over Year 1.7% 1.8% 1.6%

The preliminary flash estimate of real GDP put quarterly growth at a slightly stronger than expected 0.5 percent in the October-December period, up from a marginally firmer revised 0.4 percent in the third quarter. This equalled its fastest pace since the first quarter of 2015. Annual growth was 1.8 percent, in line with the third quarter's upwardly adjusted mark and also a little above the market consensus.

Being the preliminary flash, Eurostat provided no details on either the aggregate GDP expenditure components or individual member performance. Nonetheless, the stronger than expected showing by the Eurozone as a whole, together with the surprisingly high flash January inflation outturn (see today's calendar entry), should sit well with the ECB. Certainly, by far the majority of members are likely to be at least cautiously content with the current stance of monetary policy come March's Council meeting.

The full flash GDP estimate for the region together with national data will be released on 14th February.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. There are two preliminary estimates which are based on only partial data. The first is the preliminary flash, introduced in April 2016 and limited to just quarterly and annual growth statistics for the region as a whole. This is issued close to the end of the month immediately after the reference period. The second flash report, released about two weeks later, expands on the first to include growth figures for most member states but still provides no information on 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.