You may have heard about this morning's GDP data – and are thinking, "Well, what's GDP and what has it got to do with me, if anything?"
Now I'm not an economist, but here's my view.
In simple terms, GDP, or Gross Domestic Product data, is an estimate of the growth in the Australian economy. It measures a number of things including exports, imports, consumption and investment and the data is released by the Australian Bureau of Statistics (ABS) every three months. If you think of it like a company's profit (but for the whole of Australia), you probably also know that profit is made up of a many different inputs.
Today's figure of 0.9% for the March 2015 quarter means the Australian economy grew by 0.9% compared to the previous quarter (December 2014), mainly thanks to rising exports.
The annual rate of GDP growth came in at 2.3%, which is fairly low. If GDP was an ASX-listed company, shares would probably have plunged today – which our sharemarket, the S&P/ASX 200 (INDEX: ^AXJO) (ASX: XJO) managed to do anyway – but not because of the GDP numbers. Confused yet?
As you might expect, there are as many views on the GDP data as there are economists. Some have suggested the number shows that non-mining investment is struggling to fill the gaping hole left by falling mining investment. Others have pointed to falling savings rates as an indicator that households are spending more (which is good for the economy) while others suggest consumers and businesses lack the confidence to do much of anything. And that's despite the RBA cutting interest rates last month to a record low of 2%.
Best by default?
Treasurer Joe Hockey was upbeat, telling reporters that the data says the Australian economy is one of the fastest growing economies in the developed world. Perhaps that's more of an indication of how the rest of the world is struggling to generate any growth, rather than Australia standing out. What Mr Hockey also forgot to mention was that many African and Asian countries are growing at rates above 4%. Steven Bradbury ring any bells?
For ordinary investors like you and I, the quarterly GDP numbers don't mean all that much, but it does have some small impacts. The Australian dollar spiked about 0.5 US cents higher to more than 78 US cents on the news, so will have a tiny impact on investments you have offshore, such as US shares or international exchange traded funds (ETFs) on the ASX.
The reason the Aussie dollar spiked higher was the market's view that the RBA is more likely to keep interest rates at current levels rather than cut the official cash rate further. Yes folks, it seems we're stuck with lower rates for longer, but it also doesn't rule out more rate cuts later this year. It also means Australia isn't headed into a recession just yet.
Foolish takeaway
If you've read this far, congratulations. When it comes down to it, GDP has little direct impact on the companies we invest in, so you can ignore it – which you were probably thinking of doing anyway!
