FR: GDP Flash

Tue Jan 30 00:30:00 CST 2018

Consensus Actual Previous
Quarter over Quarter 0.6% 0.6% 0.5%
Year over Year 2.3% 2.4% 2.2%

The economy provisionally closed out 2017 in fine fashion. Real GDP rose a quarterly 0.6 percent, in line with market expectations and the rate registered during the first half of the year, but a tick above its marginally softer revised third quarter mark. Annual growth was 2.4 percent, up from 2.3 percent and its strongest print since the beginning of 2011.

Headline quarterly growth came courtesy of another respectable rise in final domestic demand, which added 0.5 percentage points, and net exports, which provided 0.6 percentage points. Accordingly, the expansion would have been more marked still but for a sizeable drawdown in stocks which subtracted 0.5 percentage points.

Household spending slowed from a 0.6 percent quarterly rate in JulySeptember to 0.3 percent but gross fixed capital formation was 0.2 percentage points stronger at 1.1 percent, its best performance since the start of the year. Within this, business spending was up a very healthy 1.5 percent while residential investment gained 0.7 percent. General government consumption advanced 0.4 percent.

Meantime, the real net export position improved significantly as exports jumped 2.6 percent, up from 1.1 percent last time, and imports increased only 0.7 percent, down from 2.4 percent. In the third quarter the real trade balance had subtracted 0.5 percentage points off the quarterly increase in total output.

Apart from the deceleration in private consumption, the first look at the national accounts last quarter is positive enough. Investment in particular is expanding at a solid clip and reflects rising optimism across the corporate sector. Moreover, the sizeable hit from de-stocking should make for higher production this quarter. Even slower growth of household spending is likely to prove temporary with consumer confidence close to its highest level since mid-2007. The turnaround in net exports is also good news, although a 0.4 percentage point hit to calendar year growth from this area still leaves a question mark hanging over French competitiveness. Even so, on the basis of this report, the first quarter looks likely to provide a robust start to economic activity in 2018.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. The flash estimate, released a relatively short 4-5 weeks after the end of the reference quarter, is an effort to speed up delivery of key economic data. In contrast to most European flash releases, the French version provides an early look at 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. 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 anaemic 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.