FR: GDP Flash

Fri Jul 28 00:30:00 CDT 2017

Consensus Actual Previous
Quarter over Quarter 0.5% 0.5% 0.3%
Year over Year 1.7% 1.8% 0.8%

The economy provisionally performed in line with expectations in the second quarter. A 0.5 percent quarterly rise in total output also matched the previous period's gain and put annual growth at 1.8 percent, up from 1.1 percent at the start of the year.

Final domestic demand added 0.4 percentage points to the quarterly change in real GDP despite another relatively sluggish rise in household consumption (0.3 percent after 0.1 percent). Public sector spending was up 0.4 percent but gross fixed capital formation (0.5 percent after 1.4 percent) again led the way, albeit at a much reduced pace than in January-March. Business investment (0.5 percent) increased at less than half its first quarter rate but residential spending (1.0 percent after 1.2 percent) held up well. Stock building, which boosted first quarter growth by 0.7 percentage points, subtracted 0.6 percentage points (largely in transportation) and so reduced the threat of an inventory overhang.

Meantime, net foreign trade swung back into positive territory as a 3.1 percent jump in exports easily eclipsed a 0.2 percent rise in imports. As a result, net exports provided a sizeable 0.8 percentage point lift, more than reversing the previous period's 0.6 percentage point hit.

Overall, while containing few real surprises, the second quarter looks to have been a good one for the French economic recovery. Not only was headline growth maintained at a respectable rate but there was also a much better balance to the key private sector GDP expenditure components. This bodes well for national output in the current quarter and, indeed, for the Eurozone economy as a whole.

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.