Wed Feb 14 03:00:00 CST 2018

Consensus Actual Previous
Quarter over Quarter 0.4% 0.3% 0.4%
Year over Year 1.6% 1.7%

The economy provisionally expanded at a 0.3 percent quarterly rate in the October-December period. This was short of an unrevised 0.4 percent gain in the third quarter and on the soft side of market expectations. It also matched the weakest outturn since the third quarter of 2016. Annual growth was 1.6 percent, a tick short of the third quarter print.

Istat provides only very limited details of the national accounts in the flash report but it did indicate that quarterly growth was built upon positive contributions from both final domestic demand and net exports. In terms of production, there were gains in industry and services, partially offset by a contraction in agriculture.

The fourth quarter advance means that total output has grown continually since the second quarter of 2014. However, the upswing has been relatively mild compared with the Eurozone average and the latest slightly disappointing outturn will widen the performance deficit still further.

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.