AU: GDP


Tue Sep 05 20:30:00 CDT 2017

Consensus Actual Previous
Quarter over Quarter 0.9% 0.8% 0.3%
Year over Year 1.9% 1.8% 1.7%

Highlights
Australia's gross domestic product grew by 0.8 percent on the quarter in the three months to June, up from an increase of 0.3 percent in the three months to March and just below the consensus forecast for an increase of 0.9 percent. Year-on-year growth in GDP also picked up from 1.7 percent in the three months to March to 1.8 percent in the three months to June, also just below the consensus forecast of 1.9 percent.

Stronger household consumption and government investment spending were the main factors pushing up headline growth in the three months to June, contributing 0.4 percentage points and 0.6 percentage points respectively. Household consumption grew by 0.7 percent on the quarter, up from 0.5 percent in the three months to March, while growth in government investment accelerated from a decline of 2.1 percent on the quarter in the three months to March to an increase of 11.0 percent in the three months to June.

Government consumption spending also strengthened in the three months to June, contributing 0.2 percentage points to headline growth, while net exports contributed 0.3 percentage points. Private investment spending, in contrast, weakened in the three months to June, falling by 1.1 percent on the quarter after an increase of 1.0 percent in the three months to March and detracting 0.2 percentage points from headline GDP growth.

Although headline growth increased in the three months to June, there are factors driving this increase which indicate that underlying growth was not as robust. The increase in household spending, in particular, was driven in large part by household savings rather than income, with officials noting that spending growth has consistently outstripped income growth over the last five quarters. This resulted in a drop in the household saving rate from 5.3 percent in the three months to March to 4.6 percent in the three months to June. Meanwhile, the increase in government investment reflected the one-off transfer of ownership of a newly-constructed major hospital from the private sector to the the public sector.

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.

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.