IT: GDP


Fri Mar 02 03:00:00 CST 2018

Consensus Actual Previous
Quarter over Quarter 0.3% 0.3% 0.3%
Year over Year 1.6% 1.6% 1.6%

Highlights
There were no revisions to economic growth in the second estimate for the fourth quarter. Real GDP is still shown expanding a sluggish 0.3 percent on the quarter, a tick less than in the July-September period, and 1.6 percent on the year, also 0.1 percentage points short of last time.

The first look at the national accounts showed another poor performance by household spending which rose a meagre 0.1 percent on the quarter (and 0.9 percent on the year). Persistent weakness here has been a major thorn in the side of the disappointingly shallow upswing in total output. However, fixed investment rose a solid 1.7 percent with machinery up 1.3 percent and transportation fully 8.2 percent. Construction (0.9 percent) similarly made decent progress. With government final consumption 0.1 percent firmer, final domestic demand added 0.4 percentage points to quarterly GDP growth which would anyway have been firmer but for a 0.4 percentage point hit from inventories.

The headline data were also supported by net external trade as exports advanced 2.0 percent or twice the rate achieved by imports. This resulted in a 0.3 percentage point boost.

Quarterly growth at the end of last year was the slowest since the third quarter of 2016. However, the bounce in investment suggests that business is reasonably confident about the outlook and the inventory drawdown should help lift output this quarter. Nonetheless, until consumers start spending again, sustained expansion at even the current modest rate will need continued strength in exports. For the time being that should not be an issue but it leaves the Italian economy very vulnerable to any global slowdown.

Definition
Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. A flash estimate, providing just quarterly and annual growth rates together with some limited qualitative information on sector output, is usually available 6-7 weeks 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.