The news: Q1 2014 GDP was revised slightly up to -0.6% qoq (+1.3% yoy) after +0.5% (1.5% yoy) in Q4 2012. The details show that exports were down 1.9% qoq and imports stagnated. Private consumption was up 0.2% qoq and public consumption fell 0.6% qoq. The sharpest fall in domestic demand came from gross fixed capital formation which down 4.2%qoq. Stock-building almost doubled between Q4 and Q1, hitting a record level in volume terms since the beginning of the series in 1995.
In terms of contributions, this means that the major driver of the fall in Q1 GDP was net trade, with a 0.8 percentage points (p.p.) contribution to the 0.6% decline. This was mostly down to exports, as imports stagnated. On the domestic demand front, the contribution from Gross Fixed Capital Formation was -0.7 p.p., after three consecutive quarters of positive contributions, private and public consumption were flat and the contribution from stock-building was as whopping +0.9 p.p.
Our comment: As we have published in a note at the time of the flash estimate, there are a number of redeeming features to the that point to some rebound in Q2, namely, a lower number of working days, the temporary closure of an oil refinery plant which affected exports, the change in seasonality due to Easter falling in Q2 this year rather than in Q1 in 2013.
However, today’s details give us some reason for concern:
- The strong positive contribution from stock-building, possibly ahead of Easter, is likely to revert in Q2, dragging down GDP
- The sharp decline in Gross fixed capital formation means it was broadly flat in the last six months, which is worrisome for the recovery in the coming months
- On the positive front, consumption recovered somewhat from the decline in Q1
We continue to expect a rebound in Q2, particularly as high frequency activity and sentiment indicators suggest that the recovery is ongoing, and external factors are liekly to be supportive, such as ultra-loose monetary policy announced last week, the resulting devaluation of the euro and the possibility that fiscal policy will be somewhat looser than expected after the Constitutional Court’s decision to veto some the 2014 Budget measures.
Nevertheless, on balance, we have decided to revis our GDP growth forecast for 2014 a tad down to 1.0%.