Gross domestic product, or GDP, is the broadest measure of how an economy is doing. The problem is that it takes time to measure properly. To give policymakers and markets an earlier read, the eurozone and several European countries publish a flash estimate, an early figure based on incomplete data. It is often the first hard number on how the economy fared in the previous quarter.
What a flash estimate is
Eurostat, the European Union’s statistics agency, publishes a preliminary flash estimate of eurozone GDP about a month after a quarter ends. It is built from the early figures released by member states, such as France, Germany, Italy and Spain, many of which publish their own first estimates on the same morning. More complete estimates follow over the next couple of months, with a detailed breakdown of spending, investment and trade.
The flash figure is usually expressed as the change in output from the previous quarter, along with a comparison with the same quarter a year earlier. A negative quarterly reading means the economy shrank.
How accurate is it?
Because it is based on partial information, the flash estimate can be revised. In most quarters the revisions are small, often a tenth of a percentage point either way, and the overall picture rarely changes. But at turning points, when an economy is moving into or out of a slowdown, revisions can be larger and more important.
Why traders care
Growth data shapes expectations for interest rates. A stronger-than-expected figure suggests the economy can cope with higher rates, which can support the euro and push bond yields up. A weaker figure can increase bets that the European Central Bank will cut rates or hold off on tightening, which may weigh on the euro.
The flash release also arrives early in the morning, before the US data that often dominates the afternoon, so it can set the tone for European trading. Country figures released before the eurozone total, especially Germany and France, often move the market first.
A simple example
Suppose economists expect eurozone growth of 0.2 per cent in the quarter, but Germany’s figure, released earlier that morning, shows a contraction. Traders may sell the euro and buy German government bonds before the eurozone number lands. If the eurozone total then comes in at 0.1 per cent, the market has already done much of the adjusting, and the reaction to the headline may be small.
Common mistakes
One mistake is ignoring the country releases that come first, which often carry the real surprise. Another is treating the flash figure as final, when revisions can change the story at turning points. A third is reading growth in isolation. With inflation high, a strong growth number does not always mean good news for shares if it pushes rate expectations up.
The bottom line
A flash GDP estimate is an early, partial read on how an economy performed in the last quarter. It can be revised, but it is often the first hard data on growth and can move the euro and bond yields, especially when it surprises. To see how the same idea works in the US, read our guide to the US GDP advance estimate. If you want to test how you would handle a data morning, try the free Samuel & Co Trading Trader Assessment.
