The economy contracted last quarter for the first time since the fourth quarter of 2020 but was still a little stronger than expected. A 0.1 percent quarterly dip was a tick shallower than the market consensus but with base effects quite strongly negative, small enough to reduce annual growth from 2.7 percent to 1.7 percent, its weakest rate since the first quarter of 2021. Total output was a modest 1.8 percent above its pre-pandemic level at the end of 2019.

In terms of output, the only other information provided by Istat indicated that negative quarterly growth was attributable to falls in agriculture, forestry and fishing and industry which combined were more than enough to offset stronger services. From the demand side, the domestic component subtracted but net exports made a positive contribution.

Today's update probably paves the way for continued sluggish activity in the current quarter, although recession is far from certain. Indeed, at 6 and 18 respectively, both the Italian ECDI and ECDI-P continue to show a limited degree of outperformance versus market expectations.

Fourth-quarter GDP is expected to contract 0.2 percent on the quarter and slow to 1.4 percent growth on the year from 2.6 percent in the third quarter.

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.