CH: Gross Domestic Product

Thu Mar 01 00:45:00 CST 2018

Consensus Actual Previous Revised
GDP Q/Q (SA) 0.5 0.6 0.6 0.7
GDP Y/Y (NSA) 1.7 1.9 1.2

Quarterly economic growth slowed slightly in the October-December period but only from a stronger revised third quarter outturn and still registered its second fastest rate since the end of 2014.

Following a 0.7 percent quarterly jump in the third quarter, real GDP expanded a stronger than expected 0.6 percent, lifting annual growth from 1.2 percent to 1.9 percent. However, household consumption was only up 0.2 percent, or half the previous period's rate, and equipment and software investment fell 1.2 percent, its first decline in almost three years. Construction (1.1 percent) made solid progress and government consumption advanced 0.5 percent but it was left to inventories (2.0 percent) to do most of the work.

Net foreign trade had a negative impact as exports of goods excluding valuables fell 1.4 percent while imports surged 4.4 percent. Services contracted 2.7 percent but imports decreased a much sharper 5.1 percent.

Still, there was better news on inflation as annual growth of the GDP deflator climbed 0.3 percentage points to (a still sluggish) 0.5 percent.

Overall, while the headline results look decent enough, the breakdown of the GDP expenditure components are disappointing. In particular the sluggishness of consumer spending is a worry and the build-up in stocks, albeit after a marked drawdown in the third quarter, could hamper production in the current period. There is nothing here to make the SNB move away from its highly accommodative monetary stance.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. There is no flash estimate and the first report is typically not issued until around sixty days after the end of the reference quarter. This has the advantage of limiting the size of any future revision and also accommodates the inclusion of 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. Investors in the stock market like to see healthy economic growth because robust business activity translates to higher corporate profits. Bond investors are more highly sensitive to inflation and robust economic activity could potentially pave the road to inflation. By tracking economic data such as GDP, investors will know what the economic backdrop is for these markets and their portfolios.

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. 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.