The economy unexpectedly contracted in the second quarter. GDP provisionally fell 0.3 percent versus the previous period when it expanded an unrevised 0.6 percent, easily undershooting the market consensus. With base effects quite strongly negative, annual growth slumped from 2.0 percent to 0.6 percent, its slowest rate since the first quarter of 2021, and total output was a modest 2.2 percent above its pre-pandemic level at the end of 2019.

In terms of output, the only other information provided by Istat indicated that the quarterly decline was attributable to weakness in the goods producing sector and forestry and fishing. Services made a positive contribution. Domestic demand also subtracted while net foreign trade had a zero impact.

Today's surprisingly soft update means that two of the largest Eurozone economies failed to grow last quarter as Germany only stagnated and makes for downside risk to the region's flash GDP report due shortly. It also reduced the Italian ECDI-P to 2 and the ECDI to 3. However, both measures show that overall economic activity is currently performing much as expected.

Second quarter GDP is expected to be flat following versus 0.6 percent growth in the first 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.