Fri Dec 01 03:00:00 CST 2017

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

Economic growth was unexpectedly revised down in the second look at the third quarter. Real GDP is now seen expanding 0.4 percent versus April-June and 1.7 percent on the year, rates both a tick short of their earlier estimates.

However, the first stab at the GDP expenditure components was relatively upbeat. Hence, while private consumption rose a modest quarterly 0.3 percent (up from 0.2 percent in Q2), gross fixed capital formation jumped 3.0 percent. Equipment investment surged fully 6.0 percent, transport was up 1.9 percent and construction 0.3 percent. Government final consumption grew 0.3 percent.

There was also a positive impact from foreign trade as exports increased a quarterly 1.6 percent while imports rose only 1.2 percent.

As a result, economic growth would have looked rather stronger but for destocking. Consequently, despite the disappointing negative headline revision, the details of the national accounts suggest that the Italian economy may be in slightly better shape than originally thought.

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.