CH: Gross Domestic Product

Tue Sep 05 00:45:00 CDT 2017

Consensus Actual Previous Revised
GDP Q/Q (SA) 0.5 0.3 0.3 0.1
GDP Y/Y (NSA) 1.0 0.3 1.1 0.6

Economic growth was surprisingly soft in the second quarter. Total output expanded just 0.3 percent on the quarter, an improvement on the previous period's downwardly revised 0.1 percent print, but still little more than half market expectations. Annual growth was also only 0.3 percent, down from 0.6 percent last time.

Amongst the major GDP expenditure components, household consumption was again very sluggish, increasing at just a 0.2 percent quarterly rate having expanded a minimal 0.1 percent at the start of the year. Investment was mixed with spending on equipment and software decelerating sharply from a 1.4 percent to a 0.3 percent rate but construction picking up 0.6 percentage points to 0.8 percent. General government consumption increased 0.3 percent. In fact, the headline data would have looked a good deal worse but for a ominously large 1.6 percentage point contribution from inventory accumulation that threatens to undermine growth this quarter.

There was also a sizeable hit from the external balance where a 0.5 percent advance in goods exports (ex-valuables) was swamped by a 5.5 percent jump in imports. This was further compounded by a 0.3 percent fall in exports of services as imports climbed 1.7 percent.

To rub salt into the wound, whole economy inflation fell back into negative territory at minus 0.1 percent having posted a positive 0.8 percent reading in the first quarter.

The second quarter national accounts are disappointingly weak and increase the likelihood of SNB policy remaining highly accommodative for a considerable time yet. Not only is domestic demand struggling to achieve any real traction but the external accounts would appear to be suffering more than the anticipated from CHF strength. The recent slippage in the CHF against the EUR will at least help to address the latter issue but the SNB will be as determined as ever to prevent any renewed appreciation by its currency.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. There is no flash estimate and the first report is typically not issued until around sixty days after the end of the reference quarter. This has the advantage of limiting the size of any future revision and also accommodates the inclusion of 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. Investors in the stock market like to see healthy economic growth because robust business activity translates to higher corporate profits. Bond investors are more highly sensitive to inflation and robust economic activity could potentially pave the road to inflation. By tracking economic data such as GDP, investors will know what the economic backdrop is for these markets and their portfolios.

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. 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.