|Quarter over Quarter||0.3%||0.2%||0.3%|
|Year over Year||1.0%||1.1%||1.0%|
The economy continued to expand at year-end but growth was on the soft side of expectations and short of its unrevised third quarter rate. Fourth quarter real GDP was provisionally up just 0.2 percent versus the July-September period when its expanded 0.3 percent. The annual increase in total output was steady at a modest 1.1 percent, although even this was still firm enough to equal its strongest performance since the second quarter of 2011.
Being the flash report there are no details available for the GDP expenditure components. However, Istat did signal a positive contribution from domestic demand. In terms of output, goods production and services both made fresh advances but agriculture declined.
The fourth quarter data make for a calendar year rise in real GDP of only 1.0 percent, another sub-par performance that will do nothing to dampen doubts about the capacity of the Italian economy to survive within the Eurozone, especially should the euro appreciate.
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.
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.