AU: GDP


Tue Jun 05 20:30:00 CDT 2018

Consensus Actual Previous Revised
Quarter over Quarter 0.8% 1.0% 0.4% 0.5%
Year over Year 2.8% 3.1% 2.4% 2.1%

Highlights
Australia's gross domestic product increased by 1.0 percent on the quarter in the three months to March, up from a revised increase of 0.5 percent in the three months to December and above the consensus forecast for an increase of 0.8 percent. Year-on-year growth in GDP picked up from 2.1 percent in the three months to December to 3.1 percent in the three months to March, also above the consensus forecast of 2.8 percent.

Stronger private investment was the main factor pushing up headline GDP growth in the three months to March, adding 0.2 percentage points after a negative contribution of 0.3 percentage points in the three months to December. Net exports also made a strong contribution of 0.4 percentage points, unchanged from the previous quarter. Household consumption, however, made a smaller contribution to the headline of 0.2 percentage points, down from 0.6 percentage points previously, with the contribution of government spending also falling from 0.4 percentage points to 0,3 percentage points.

Officials at the Reserve Bank of Australia, in the statement accompanying their decision to leave policy rates on hold earlier in the week, argued that recent data have been consistent with their forecast that domestic economic growth will pick up and average "a bit above 3.0 percent' in 2018 and 2019. Stronger exports and non-mining business investment, in particular, are expected to support headline growth despite concerns that slow wage growth is holding back household consumption. Today's data will likely reinforce these concerns about the outlook for consumer spending. Price pressures are expected to remain subdued and to strengthen only gradually as economic conditions improve, with the central forecast for headline CPI inflation to be a bit above 2.0 percent in 2018.

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.