Portuguese GDP fell 0.7%qoq (+1.2%yoy) after a downwardly revised 0.5%qoq (1.7%yoy). Though the details are not available yet, the Portuguese statistcs have indicated that this decline is mostly due to the negative contribution from net exports. The contribution from domestic demand was positive, particularly investment.
Today’s data was very disappointing as it erases the Q4 and part of Q3 2013 gains. It also may put the 2014 Government forecast of 1.2% at risk, as well as the expected budget execution. However, there are some redeeming factors:
– High frequency indicators on confidence and the impact of potential temporary factors suggest that this decline is likely to revert somewhat in Q2.
– Part of decline is due to temporary factors, such as the temporary 45-day pause in production at one large oil refineries from GALP, which will not be repeated in Q2. Also, in Portugal, GDP is not adjusted by the number of working days, which were two less in Q1 2014 than in Q4 2013.
– Imports have reportedly accelerated, which pushes down GDP. However, this may de due to the reportedly significant rise in investment, which would be positive in the medium/long term.
– The estimate of deflators, particularly of net exports, is subject to sharp revisions, as a result, some of the weakness in real net exports may be due to inflation being overestimated in net exports. Indeed, the Portuguese statistics have indicated that the downward revision to Q4 GDP was down to an underestimation of inflation in net exports in Q4.
In the euro area, GDP was up 0.2%qoq, as in Q4, below expectations. Though German GDP accelerated much more than expected to 0.8%qoq after 0.4% in Q4, France stalled and Italy’s GDP fell by 0.1%. Together with weak readings on inflation this should justify some action by the ECB when it next meets in June.