September 6, 2016 08:30 CDT

Consensus Actual Previous Revised
Quarter over Quarter 0.6% 0.5% 1.1% 1.0%
Year over Year 3.4% 3.3% 3.1%

Australia's gross domestic product increased by 0.5 percent in the three months to June, and by 3.3 percent when compared with the same period a year ago. Quarterly growth slowed from the 1.0 percent recorded in the three months to March (revised down from a previous estimate of 1.1 percent). GDP growth was also slightly weaker than the consensus forecast, which had been revised higher after the release of investment and government spending data earlier in the week.

Headline GDP growth was driven by private and public consumption, up 0.4 percent and 1.9 percent respectively on the quarter. Total investment, in contrast, was flat on the quarter, with strength in public investment offset by an ongoing reduction in engineering construction associated with the mining sector.

Net exports made a negative contribution to headline growth of 0.2 percentage points, with a solid increase in export volumes outweighed by stronger growth in import volumes.

Mining, financial and insurance services, and public administration and safety were the sectors that made the strongest contribution to annual growth in the quarter, offset by a negative contribution from the manufacturing sector.

The GDP price deflator, which shows the overall price movement in the Australian economy, rose by 0.9 percent in the three months to June. The terms of trade rose by 2.3 percent in that period, the first quarterly increase since late 2013, and fell by 5.4 percent through the year.

The GDP report suggests that Australia's economy is continuing its transition to new sources of growth, after relying heavily on mining investment in previous years. The Reserve Bank of Australia expects GDP growth of between 2.5 percent and 3.5 per cent this year, according to its latest quarterly statement on monetary policy released in August.

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.

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.