GDP components: the end of investment-driven growth

matheikaThe second estimation confirmed the year-on-year GDP growth rate of 3.4% in Q4. The yearly average growth rate, on the other hand, has been revised from 3.5% to 3.6%, due to the upward revision of the growth numbers regarding the previous quarters.

On the production side, the last quarter saw a marked deceleration of industrial and construction growth. Industrial added value grew by 4%, as opposed to the consistently above-5% pace during the first three quarters, and the growth rate of construction added value fell to 6.2% from 11.4% in Q3. As expected, this deceleration was offset by the gathering pace of growth in services – to 2.4%, from 1.7% in Q3 – primarily due to the acceleration in trade and tourism. On average, 2014 as a whole was characterized by a growth-driven by industry, construction, and – previously unexpected – fast paced agricultural expansion, but this year will look more akin to the last quarter, with less prominent   industrial growth, and relatively buoyant growth in services.

GDP contrOn the exenditure side, a dramatic slowdown in fixed capital formation (from 13.2% in Q3 to a mere 1.9% in Q4) was the defining event in the fourth quarter. This was only partially offset by private consumption – the latter grew by 2%, a rate somewhat less exuberant than expected. Instead, net exports surprisingly rushed in to help: as a result of an unexpected surge in services exports, overall exports grew at a same rate as imports, and net exports contributed positively to GDP  growth in Q4, unlike any previous quarter of 2014. Still, 2014 as a whole was characterised by growth, driven by domestic demand and held back by net exports, and this trend is likely to continue in 2015. But the character of domestic demand will shift: instead of fixed investments, driven by EU funded projects and dynamic manufacturing, the revival of private consumption is likely to become the defining component.