Tue Nov 14 03:00:00 CST 2017

Consensus Actual Previous
Quarter over Quarter 0.5% 0.5% 0.4%
Year over Year 1.7% 1.8% 1.5%

The Italian economy provisionally grew at a 0.5 percent quarterly rate in the July-September period. This was in line with market expectations and up from a slightly softer revised 0.3 percent rate in the second quarter. Annual growth climbed 0.3 percentage points to 1.8 percent. This equalled the best quarterly performance since the Great Recession and marked the highest yearly expansion rate since the first quarter of 2011.

As usual with the flash report, Istat offered only very limited details of how the major sectors performed. However, goods producing and service sector industries made fresh headway while agriculture contracted. Both domestic demand and net foreign trade also made positive contributions.

Today's GDP report may boost hopes that the Italian recovery is finally gaining some momentum. However, recent economic news has been mixed with industrial production down sharply in September and October's PMI composite output index sliding to a 9-month low. Still, business sentiment and consumer confidence have improved significantly since the start of the year so, if not exactly robust, the immediate outlook would seem at least moderately optimistic.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. A flash estimate, providing just quarterly and annual growth rates together with some limited qualitative information on sector output, is usually available 6-7 weeks after the reference quarter.

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 anemic 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.