EMU: GDP


Thu Sep 07 04:00:00 CDT 2017

Consensus Actual Previous
Quarter over Quarter 0.6% 0.6% 0.6%
Year over Year 2.2% 2.3% 1.9%

Highlights
The third stab at second quarter growth showed no significant changes to the flash estimate. Total output expanded an unrevised 0.5 percent versus the first quarter and 2.3 percent on the year, up just a tick from the August print and 0.3 percentage points stronger than its final mark in January-March.

More interestingly, this was the first look at the GDP expenditure components and these revealed a useful 0.5 percent quarterly advance in household consumption following a 0.4 percent rise in the previous quarter. Fixed capital formation (0.9 percent after minus 0.3 percent) made a welcome return to positive growth while government spending (0.5 percent after 0.2) more than doubled its first quarter rate. There was also no inventory overhang as stock building subtracted a second successive 0.1 percentage points from the quarterly change in GDP.

Additionally, there was moderately good news on the real external trade balance as a 1.1 percent increase in exports just more than offset a 0.9 percent rise in imports to yield a positive net contribution of 0.1 percentage points. This followed a 0.4 percentage point boost in the first quarter.

Regionally, economic growth was broad-based with all reporting countries recording a quarterly rise in national GDP. Top of the pack was the Netherlands (1.5 percent) ahead of Estonia (1.3 percent) and Latvia (1.2 percent). Even the weakest member (Portugal at 0.3 percent) had a moderately respectable quarter. Amongst the large four economies, Italy (0.4 percent) lagged France (0.5 percent), Germany (0.6 percent) and Spain (0.9 percent).

The second quarter data are already too historic to be of much interest to today's ECB meeting. Nonetheless, confirmation of an increasingly broad-based economic upswing built upon an accelerating recovery in domestic demand should be well received. That said, the key question remains whether or not the economy is now on the sustainable growth path needed for the central bank to meet it price stability goals.

Definition
Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy and is usually released early in the third month after the reference period. Following two provisional (flash) estimates containing only limited information, this report provides the first full look at the national accounts for the region.

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 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. 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, and price (inflation) indexes 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 typically lead to increased demand for a local currency. However, inflationary pressures can put downside pressure on a currency regardless of growth. For example, if inflation remains above the ECB’s near-2 percent target for long enough, worries about the impact of lost competitiveness on the merchandise trade balance could prompt investors to switch to an alternative currency.