GDP growth loses steam in Q2 but beats expectations

GDP reading: GDP growth moderated to 5.2% year on year in the second quarter from 5.4% in the first quarter but topped market expectations. Despite trade frictions with the U.S., economic activity was underpinned by export front-loading, accelerating credit growth and a trade-in program for domestic consumer goods purchases. On a seasonally-adjusted quarter-on-quarter basis, economic growth cooled to 1.1% in Q2, compared to the previous period's 1.2% expansion and marking the worst reading since Q2 2024.

Broad-based expansion: The services sector grew 5.7% annually in the second quarter, picking up from the first quarter's 5.3% increase. Meanwhile, the industrial sector lost steam, growing 4.8% in Q2 (Q1: +5.9% yoy). Finally, agricultural sector growth edged up to 3.8% in Q2 following the 3.5% increase recorded in the prior quarter.

Slowdown expected: Our Consensus is for GDP growth to average close to 4% in H2 after the 5%+ readings observed in H1, as export front-loading runs its course and private spending loses steam.

Panelist insight: Summarizing the drivers likely to weigh on the H2 performance, Nomura analysts said: “We see a demand cliff in H2, driven by multiple factors. The new austerity measures that began in mid-May are now in full force, squeezing mid- and upper-tier restaurants and slashing alcohol sales. The payback effect from strong durable goods sales that were bolstered by the trade-in progra” over the past year is finally set to materialize, although the exact timing remains somewhat uncertain. The campaign to address overcapacity, especially in the green-energy sector, has finally begun, and while this is good for the eventual health of these sectors, its near-term impact entails reduced demand for raw materials and slumping investment. The export growth slowdown could worsen?, thanks to the US tariffs, the end of the pent-up shipping following the tariff truce, and payback from prior front-loading. Lastly, the property sector is still in deep trouble, with sales volume and price declines having worsened recently.”

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