Week ahed & in review: Portugal records strong domestic demand growth in Q1 2015

Week in review – Q1 GDP grows on the back of strong domestic demand: The Portuguese National Statistics Office confirmed today that GDP grew 0.4%qoq in Q1 2015, and revised up the yoy% rate by 0.1 pp to 1.5%. The biggest surprise came from Gross fixed capital formation, which rose 2.9%qoq and 8.5%yoy (the item growing the most this quarter), pointing to the continued recovery in investment, from very low levels. This is the 4th consecutive quarter of increase in GFCF.  Private consumption was up 0.8%qoq and 2.5%yoy. Domestic demand, excluding exports, contributed by 1 p.p. to qoq GDP growth. Stockbuilding also surprised on the upside, contributing with 0.4 p.p. to total GDP growth. However, this is unlikely to continue in the next quarter and may even revert. On the negative side, the contribution of net exports was negative at -1 p.p., due to a 0.2% qoq fall in exports (although they more than 6%yoy) and a rise of 2%qoq in import  (which also rose more than 6%yoy).

In the euro area (and in the EU) the European Sentiment Indicator (ESI) was unchanged in May relatively to April. Germany and France reported small rises, Spain’s indicator was unchanged. The indicator fell in Greece, Portugal and Italy. Portugal reported the largest fall amongst these countries (-2.3 points), after several mosnths of rises; its index remains 1.9 points above its long term average. Except for Greece, with a clear declining trend, the ESI suggests that economic activity in the EA in the first half of 2015 may perform relatively well.

Inflation in Portugal continued in positive territory in April (0.4%yoy), after the return to prices’ growth in March (0.3%yoy). However, inflation remains very low and the last month with CPI growing more than 1% is far in December 2012. Core inflation fell 0.1 pp in April to 0.5%. Inflation in the Eurozone was flat in April, up from –0.1%yoy in March. In April 2014, inflation was 0.7%. According to the Eurostat, the largest contribution to euro area annual inflation came from restaurants & cafés (+0.10 percentage points) and rents (+0.08 pp), while fuels for transport (-0.42 pp), and heating oil (-0.17 pp) had the biggest downward impacts. Inflation excluding energy and unprocessed food was 0.7%yoy in April, 0.1 pp above March’s.

In the US, GDP growth was revised downwards to -0.7% annualised (about -0.2%qoq). Initial estimates were for a .05% rise in Q1. The motivations for the revision are slower stockbuilding and weaker exports, on the back of a strong dollar. While this is seen by most analysts as a weather related blip, it means that the Federal Reserve is now more likely to delay the first hike towards the end of the year.