Thu Dec 07 04:00:00 CST 2017

Consensus Actual Previous
Quarter over Quarter 0.6% 0.6% 0.6%
Year over Year 2.5% 2.6% 2.3%

The third (and final) stab at third quarter Eurozone GDP showed no significant change to the previous growth estimates. Total output expanded an unrevised 0.6 percent on the quarter and was up a marginally firmer revised 2.6 percent on the year. The former rate was just 0.1 percentage points short of its second quarter outturn but the latter was a couple of ticks stronger than its weaker adjusted second quarter print.

The dip in the quarterly rate was largely due to household consumption which slowed from 0.5 percent to 0.3 percent. Fixed capital formation (1.1 percent after 2.2 percent) also weighed as did, to a lesser extent, government consumption (0.2 percent after 0.3 percent). Inventory accumulation added 0.1 percentage points to the quarterly change in GDP, matching its second quarter impact.

External trade had no net effect as a 1.2 percent increase in exports (up from 1.0 percent) was effectively cancelled out by a 1.1 percent rise in imports (down from 1.7 percent). In the second quarter net exports subtracted 0.2 percentage points.

Overall the third quarter national accounts may be seen as a little disappointing. The cooling in investment is hardly surprising after a very robust second quarter but the slowdown in household spending is more of a surprise in the wake of strong employment growth and persistently sluggish inflation. Still, the headline GDP data are respectable enough and economic growth was reassuring widespread across the region. Despite what looks to have been a poor October, consumer and business surveys still point to a solid performance through year-end.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy and is usually released early in the third month after the reference period. Following two provisional (flash) estimates containing only limited information, this report provides the first full look at the national accounts for the region.

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 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. 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, and price (inflation) indexes 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 typically lead to increased demand for a local currency. However, inflationary pressures can put downside pressure on a currency regardless of growth. For example, if inflation remains above the ECB’s near-2 percent target for long enough, worries about the impact of lost competitiveness on the merchandise trade balance could prompt investors to switch to an alternative currency.