CH: Gross Domestic Product

Thu Nov 30 00:45:00 CST 2017

Consensus Actual Previous Revised
GDP Q/Q (SA) 0.6 0.6 0.3 0.4
GDP Y/Y (NSA) 0.8 1.2 0.3 0.5

The economy picked up a little momentum last quarter. Total output expanded 0.6 percent versus the April-June period when it rose a marginally stronger revised 0.4 percent. This was in line with market expectations and the best performance since the fourth quarter of 2014. Indeed, it was firm enough to lift annual growth to 1.2 percent, up from 0.5 percent.

The pick-up in quarterly growth was due to a combination of a stronger final domestic demand and a much healthier real trade balance. Household spending advanced 0.4 percent or double its second quarter rate and government expenditure increased 0.5 percent after 0.3 percent last time. Equipment and software investment was steady at a 0.9 percent rate but construction declined 0.1 percent. Inventory accumulation subtracted a sizeable 1.0 percentage points.

Meantime, exports of goods (ex-valuables) jumped 2.1 percent, some three times their second quarter pace, while imports shrunk 1.6 percent following a 5.0 percent surge. With services exports (minus 0.4 percent) shrinking less quickly than imports (minus 0.7 percent), overall net exports were very positive. The weaker CHF has clearly had some impact.

There was also better news on inflation. Hence, the GDP deflator rose 0.2 percent on the year, up from a minus 0.2 percent rate in the second quarter. Even so, this was still short of the 0.8 percent pace registered at the start of 2017.

Overall the third quarter national accounts suggest that the Swiss economic recovery is becoming increasingly well established. Nonetheless, inflation remains uncomfortably low and faster growth will need to be sustained to make significant inroads into the output gap. SNB policy is going nowhere in a hurry.

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.