Wed May 02 04:00:00 CDT 2018

Consensus Actual Previous
Quarter over Quarter 0.3% 0.3% 0.3%
Year over Year 1.5% 1.4% 1.6%

The Italian economy again failed to impress at the start of 2018. First quarter GDP provisionally expanded a modest 0.3 percent versus October-December, matching both that period's unrevised rate and market expectations. It was also the weakest print since the third quarter of 2016. The annual expansion rate eased from 1.6 percent to 1.4 percent, the worst performance since the end of 2016.

Being the flash report, Istat provided no details of the GDP expenditure components. However, it did indicate that domestic demand expanded on the quarter while foreign demand made a negative contribution. In addition, industrial production was only flat leaving the gain in total output attributable to advances in agriculture and services.

Political uncertainty surrounding March's inconclusive general election may have had some negative impact on growth last quarter but, crucially, consumer spending has been sluggish for a long while now. This looks unlikely to change anytime soon unless the incoming government adopts a markedly more expansionary fiscal policy.

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.