FR: GDP


Tue Aug 29 01:45:00 CDT 2017

Consensus Actual Previous
Quarter over Quarter 0.5% 0.5% 0.5%
Year over Year 1.8% 1.7% 1.1%

Highlights
Economic growth was unrevised in the second quarter. In line with the flash estimate, total output expanded 0.5 percent versus the January-March period and so matched that period's rate. However, annual growth was trimmed a tick to 1.7 percent.

As previously reported, domestic final demand again added 0.4 percentage points to the quarterly change in GDP, largely thanks to gross fixed capital formation which rose an upwardly revised 0.7 percent on the back of strength in both businesses (0.7 percent) and housing (1.0 percent). Household consumption was up an unrevised 0.3 percent while government spending was just 0.1 percentage points firmer. Inventories subtracted a slightly reduced, but still sizeable, 0.5 percentage points following a 0.7 percentage point boost last time.

The biggest lift still comes from net foreign trade. However, with exports shaded to a 2.5 percent rate and imports nudged up to 0.4 percent, the net impact was 0.6 percentage points, a couple of ticks short of the flash estimate.

The changes to the second quarter national accounts leave the French economy on course for a probable respectable third quarter. Faster growth will likely need a larger contribution from private consumption but still high levels of unemployment (9.6 percent in June) make for downside risk here. On a positive note, the recovery in investment suggests that confidence is on the up but, against that, net trade could well suffer should the euro continue to appreciate. Indeed, the ECB will be keeping an increasingly wary eye on the exchange rate.

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.