The economy just avoided falling into recession at the end of 2023, but only due to a small upward revision to the third quarter data. A 0.3 percent quarterly fall in total output was in line with the market consensus (and the first decline since the fourth quarter of 2022) but followed a flat reading in the previous period, revised up from the 0.1 percent fall reported earlier. Annual workday adjusted growth edged up from minus 0.3 percent to minus 0.2 percent while unadjusted, GDP was down 0.4 percent on the year.

As usual, no GDP expenditure components were released in the first estimate but the Federal Statistical Office did indicate that there was a sharp contraction in both construction and investment in machinery and equipment.

The fourth quarter data confirm a miserable end to the year by the German economy. Manufacturing has been in the doldrums for some time and, with new orders still trending down, any near-term bounce looks unlikely. Services have also been struggling and with consumer confidence very weak, will face a difficult start to 2024 too. Consequently, first quarter GDP growth will do well to keep its head above water meaning that recession remains a very real possibility. Indeed, today's update puts the German RPI at minus 35 and the RPI-P at minus 39, both readings showing economic activity in general running well behind market expectations.

The flash estimate for fourth-quarter GDP is quarter-over-quarter contraction of 0.3 percent and year-over-year contraction of 0.2 percent. This would compare with respective third-quarter contraction of 0.1 and 0.4 percent. German GDP has been essentially flat since fourth-quarter 2022.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. The provisional or flash estimate is normally released in the second week of the second month after the reference quarter. This is based on only limited data and provides just quarterly and annual growth rates and a limited qualitative guide to how the major output sectors performed.

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 anaemic 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.