Fri Feb 23 01:00:00 CST 2018

Consensus Actual Previous
Quarter over Quarter 0.6% 0.6% 0.8%
Year over Year 2.9% 2.9% 2.8%

Quarterly economic growth was unrevised at 0.6 percent in the October-December period following a 0.7 percent gain in the third quarter. This put the workday adjusted yearly change in total output at 2.9 percent, also in line with its provisional estimate but up a couple of ticks from the previous quarter. Unadjusted, annual growth was 2.3 percent, again in line with the earlier report and 0.1 percentage points above last time.

However, the respectability of the headline data was largely due to net exports which added fully 0.5 percentage points to the quarterly rise in real GDP. Exports were up 2.7 percent while imports climbed a smaller 2.0 percent. Final domestic demand added just 0.1 percentage points as both household consumption and gross fixed capital formation stagnated. The consumer print was particularly disappointing as it followed a 0.2 percent decline in the third quarter. Within overall investment, a 0.7 percent spurt in machinery and equipment was cancelled out by falls in construction (0.4 percent) and other investment (0.1 percent). Government final consumption matched its 0.5 percent third quarter rate while business inventories had a neutral impact.

The German economy had a good 2017 and full calendar year growth of 2.5 percent was well above original expectations. Even so, with employment at record levels and households' disposable incomes 3.2 percent higher, the softness of consumer spending in the second half comes as a surprise. There should be room for a much stronger performance by this sector at the start of 2018 which, with industry order books overflowing, ought to equate with a very robust first half to the year for business activity in general.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. Following the release of the flash estimate about two weeks earlier, the second report incorporates additional data to provide a more accurate reading. It also contains details of the key GDP expenditure components and full national accounts.

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.