DE: GDP Flash

Tue Nov 14 01:00:00 CST 2017

Consensus Actual Previous
Quarter over Quarter 0.6% 0.8% 0.6%
Year over Year 2.4% 2.8% 2.1%

The economy continued to expand at a very healthy clip in July-September. Following an unrevised 0.6 percent gain in the previous period, real GDP provisionally grew at a surprisingly strong 0.8 percent quarterly rate, its second fastest pace since the fourth quarter of 2012. Annual workday adjusted growth was 2.8 percent, up some 0.5 percentage points from last time, while unadjusted it weighed in at 2.3 percent after 1.0 percent.

The few details provided by the Federal Statistics Office indicated that the expansion was led by net exports and investment in machinery and equipment. By comparison, household and government consumption were relatively stable.

Consumer and business surveys have suggested that the current quarter also got off to a solid start and forward-looking indicators remain very positive. Economic growth in calendar 2017 looks set to outperform earlier expectations and by some margin too. The ECB should be happy but will be hoping to see more of a spillover into the less well performing Eurozone states. Today's report makes for some upside risk to the third quarter Eurozone flash GDP data due later this morning.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. The first or flash estimate is normally released in the second week of the second month after the reference quarter. This is based on only limited data and provides just quarterly and annual growth rates and a limited qualitative guide to how the major output sectors performed.

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.