CH: Gross Domestic Product

Thu May 31 00:45:00 CDT 2018

Consensus Actual Previous
GDP Q/Q (SA) 0.5 0.6 0.6
GDP Y/Y (NSA) 2.3 2.2 1.9

Real GDP expanded at a slightly stronger than expected 0.6 percent quarterly rate in the period just ended. This matched the unrevised gain at the end of 2017 and lifted annual growth from 1.9 percent to 2.2 percent, its fastest print since the fourth quarter of 2014.

The quarterly advance was supported by a 0.4 percent spurt in household consumption, double its fourth quarter rate and back in line with its long-run average. Investment in equipment and software (3.6 percent after minus 1.3 percent) also made a significant positive contribution although construction (minus 0.4 percent after 1.0 percent) moved in the opposite direction. Elsewhere, government consumption dipped 0.3 percent following a 0.5 percent increase last time.

Net foreign trade had a small negative impact as exports of goods (excluding valuables) rose 2.0 percent while imports were up a sharper 2.9 percent. A partial offset came from services where a 0.9 percent advance in exports just outpaced the rise in import (0.8 percent).

Meantime, inflation developments were disappointingly soft with the annual change in the GDP deflator declining 0.4 percentage points to a minimal 0.1 percent, its weakest mark since the second quarter of 2017. Within this, the household consumption rate halved to just 0.2 percent.

Consequently, the SNB should have mixed feelings about the first quarter national accounts. The acceleration in private domestic demand will certainly be welcomed but the lack of any response from inflation is a worry. Accordingly, with the CHF already having gained significant ground on the back of the Italian political crisis, the bottom line is that monetary policy still looks unlikely to change any time soon.

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.