GDP records sharpest contraction since Q1 2022 in the first quarter

A second national accounts release showed that GDP dropped 1.4% on a seasonally adjusted quarter-on-quarter basis in the first quarter, below the downwardly revised 1.7% expansion tallied in the fourth quarter of last year. The downturn was the worst in two years, despite coming in above the preliminary estimate of minus 1.8%. Meanwhile, on an annual basis, economic growth lost steam, cooling to 1.4% in Q1, following the previous quarter's upwardly revised 4.9% expansion. Despite slowing down, Q1’s result was a notable improvement from the preliminary estimate of a 0.2% increase.

The quarterly downturn reflected deteriorations in household consumption and exports. Domestically, private consumption worsened, contracting 0.2% seasonally adjusted quarter on quarter in Q1 from a 1.5% expansion in Q4. A stronger increase in both employment and total worked hours than in Q4 likely prevented a steeper fall. Similarly, while average inflation doubled from Q4 in Q1, it was over five times lower than annual nominal wage growth, supporting the ongoing recovery in purchasing power. Meanwhile, government consumption rebounded, growing 1.1% in Q1 (Q4: -0.9% s.a. qoq). Similarly, fixed investment also bounced back, growing 1.0% in Q1, contrasting the 9.9% contraction in the prior quarter. Turning to the external sector, exports of goods and services contracted 4.6% in Q1 (Q4: +6.8% s.a. qoq), marking the worst reading since Q2 2020. Conversely, imports of goods and services fell at a more moderate rate of 0.1% in Q1 (Q4: -1.1% s.a. qoq).

Our Consensus is for GDP to have rebounded in sequential terms in the second quarter. Moving to H2, our panelists anticipate quarter-on-quarter GDP growth to remain roughly stable from Q2. The recent drop in inflation and interest rates will support consumer spending, as should a recovery in house prices due to their positive impact on household wealth.

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