Tue Dec 05 18:30:00 CST 2017

Consensus Actual Previous Revised
Quarter over Quarter 0.7% 0.6% 0.8% 0.9%
Year over Year 3.0% 2.8% 1.8% 1.9%

Australia's gross domestic product grew by 0.6 percent on the quarter in the three months to September, down from a revised increase of 0.9 percent in the three months to June and just below the consensus forecast for an increase of 0.7 percent. Year-on-year growth in GDP increased from a revised 1.9 percent in the three months to June to 2.8 percent in the three months to September, also just below the consensus forecast of 3.0 percent.

Stronger business investment spending was the main component of GDP supporting quarterly growth in the three months to September, making a positive contribution of 0.9 percentage points. This was offset by weaker government spending which detracted 0.4 percentage points from headline growth. Household consumption made a modest 0.1 percentage point contribution to headline growth, with government consumption and net exports both making zero contribution.

Relative to the previous quarter, growth in household consumption was much weaker, up just 0.1 percent on the quarter in the three months to September after an increase of 0.8 percent in the three months to June. This is the weakest quarterly growth in household consumption since 2005. Growth in business investment spending, however, rebounded sharply from a fall of 3.0 percent on the quarter in the three months to June to an increase of 8.6 percent in the three months to September.

Today's GDP report is broadly in line with the assessment of economic conditions made by the Reserve Bank of Australia after its policy meeting earlier in the week. Officials noted that forward-looking indicators were suggesting that the outlook for non-mining business investment had improved, but also warned that slow growth in household incomes and high levels of household debt are clouding the outlook for consumer spending. Officials forecast the Australian economy to grow by 2.5 percent in the year ended December 2017 and 3.25 percent in the year ended December 2018.

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.

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.