Thu May 24 01:00:00 CDT 2018

Consensus Actual Previous
Quarter over Quarter 0.3% 0.3% 0.6%
Year over Year 2.3% 2.3% 2.9%

The economy grew at an unrevised 0.3 percent quarterly pace at the start of the year, just half the rate achieved at the end of 2017 and equalling the weakest print since the first quarter of 2015. Annual workday adjusted growth similarly matched its provisional 2.3 percent outturn, 0.6 percentage points short of its fourth quarter rate. Unadjusted, GDP was up 1.6 percent on the year after 2.3 percent last time.

Promisingly however, the first look at the GDP expenditure components showed a stronger period for household spending which, at a 0.4 percent quarterly rate, saw its largest gain since the second quarter of 2017. There was also better news on gross fixed capital formation which expanded fully 1.7 percent after a 0.3 percent increase last time. Within this, investment in machinery and equipment (1.2 percent after 0.7 percent) again outperformed and construction (2.1 percent after 0.1 percent) was especially buoyant. Still, with government consumption down 0.5 percent and inventories subtracting 0.1 percentage points, the contribution of domestic demand to quarterly GDP growth was restricted to 0.4 percent. Even so, this was comfortably more than the minimal 0.1 percentage points in the previous period.

Meantime, having boosted growth by some 0.5 percentage point in the fourth quarter, net foreign trade made a 0.1 percentage point hit this time. Exports fell 1.0 percent while imports were off 1.1 percent.

Consequently, despite the sluggish headline data, the underlying performance of the German economy last quarter improved significantly in a number of key areas. The current quarter does not appear to have started very well but the details of today's report offer hope that it could yet surprise on the upside.

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.