GDP records sharpest contraction since 2020 in Q3

GDP declined 0.9% on a seasonally adjusted quarter-on-quarter basis in Q3, deteriorating notably from the 0.4% expansion logged in the second quarter. Q3's downturn marked the worst reading since Q2 2020 during the first wave of the pandemic.

The downturn was broad-based. On the domestic front, household spending contracted at a steeper pace of 0.6% in Q3 (Q2: -0.2% s.a. qoq), marking the strongest decline since Q4 2022. While average inflation in Q3 was below Q2’s average, price pressures remained elevated, which, coupled with high interest rates, continued to dampen purchasing power. To make matters worse, the unemployment rate rose to a two-year high of 7.4% in Q3, which also hurt household spending. Government spending dropped at the sharpest pace since Q1 2023, contracting 2.7% (Q2: +2.4% s.a. qoq). Meanwhile, fixed investment slid at a rate of 1.5% in Q3 from the flat reading posted in the prior quarter. On the external front, exports of goods and services contracted 1.8% in Q3 (Q2: -0.1% s.a. qoq), marking the worst result since Q4 2022. Imports of goods and services contracted at a sharper pace of 3.2% in Q3 (Q2: -1.2% s.a. qoq). On an annual basis, GDP declined 1.5% in Q3, following the previous quarter's 0.6% fall. Q3's downturn marked the sharpest contraction since Q3 2020.

The economy is set to avoid entering a technical recession; our panel expects it to flatline in sequential terms in Q4 2023. Consequently, our panelists still see GDP expanding marginally overall in 2023.

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