GDP: domestic use gathering pace amid disturbance in service exports

According to the second estimate, and in accordance with the preliminary estimate, GDP rose by a year-on-year 3.2 percent in the second quarter. This is way below the 4.2% of the first quarter, but the seasonally and working day adjusted growth (3.5 percent), by contrast, was only marginally lower than in Q1.

On the production side, the deceleration was due to the industrial slowdown (to 3 percent from the 6.8 percent in Q1), as expected, and to a pronounced (two-digit) fall in agricultural value added, more or less expected too. Construction growth gained some additional speed (28.6 percent) but services growth failed to accelerate – in fact, it slightly decelerated to 2.8 percent. This is, however, a result of the negative growth in public services; private services accelerated, mostly on the back of trade, tourism, and info-communication services.

As for the expenditure side, domestic use had nothing to do with the second-quarter slowdown – on the contrary, it expanded by an impressive 4.7 percent, due the the still very strong growth of gross fixed capital formation (21.2 percent) and the strengthening private consumption growth (private consumption expenditures soared by 4.7 percent). The culprit behind the GDP slowdown was net export, more specifically the unexpected halt, even slight decrease, in the export of services, after its steep growth in Q1. The negative turn in the services export is surprising in the light of record growth in inbound tourism, although it can be technically explained by the statistical base effect (a sudden quarter-on-quarter jump of services export in the second quarter of 2016). This negative turn is likely to prove temporary. The import of goods decelerated largely in accordance with the slowdown in merchandise exports, even amid strong consumption and investment growth, hence the negative growth contribution of the net export of goods increased only marginally compared to the first quarter.

The average GDP growth in the first half of the year was 3.6 percent. We expect an acceleration of growth in the second half since the expansion of domestic use will remain dynamic and services export is likely to resume its upward trend during the coming quarters.

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