|Quarter over Quarter||0.3%||0.3%||0.4%|
|Year over Year||0.9%||0.8%||1.1%|
Quarterly economic growth slowed in line with expectations at the start of the 2017. Real GDP was up 0.3 percent versus the fourth quarter of 2016 when it expanded a slightly stronger revised 0.5 percent. As a result, the annual rise in total output slipped to 0.8 percent.
Domestic demand accounted for 0.4 percentage points of the quarterly increase in total output despite a disappointing minimal 0.1 percent increase in household consumption. Gross fixed capital formation improved from a 0.6 percent rate to 0.9 percent within which business investment was up a solid 1.3 percent while residential investment advanced 0.9 percent. Government consumption rose 0.4 percent.
Inventory accumulation added fully 0.6 percentage points to quarterly growth but this impact was more than offset by a sizeable 0.7 percentage point hit from net foreign trade as exports dropped 0.7 percent and imports jumped 1.5 percent.
So the first quarter data are something of a mixed bag. The accelerating trend in investment is certainly promising but the sluggishness of consumption is a worry and the build-up in stocks could well hit output this quarter. The deterioration in the external balance is also a concern and will add to doubts about French competitiveness, especially should the euro appreciate.
Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. The flash estimate, released a relatively short 4-5 weeks after the end of the reference quarter, is an effort to speed up delivery of key economic data. In contrast to most European flash releases, the French version provides an early look at the GDP expenditure components.
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 anaemic 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.