Economy returns to growth in Q1

A second national accounts release revealed that GDP rebounded in the first quarter, expanding 0.1% year on year. Q1’s upturn marked the best result since Q1 2023 and was above both the 0.5% contraction recorded in the fourth quarter of last year and the preliminary estimate of a 0.2% decrease. On a seasonally adjusted quarter-on-quarter basis, economic activity increased 0.9% in Q1, above the previous quarter's 0.4% decrease. Q1's reading marked the strongest reading since Q1 2022.

The annual upturn reflected improvements in private and public spending, plus a softer decline in exports compared to the previous period. Private spending rebounded 0.7% in the first quarter, which was above the fourth quarter's 0.9% contraction. Moreover, government consumption grew at the fastest pace in over 17 years, expanding 8.2% (Q4 2023: +7.5% yoy). Meanwhile, fixed investment sung into contraction, falling 9.3% and contrasting the 12.1% expansion logged in the previous quarter. On the external front, exports of goods and services dropped 3.1% on an annual basis in the first quarter, which was above the fourth quarter's 5.9% contraction. Conversely, imports of goods and services contracted at a steeper pace of 6.4% in Q1 (Q4 2023: -4.4% yoy).

Our Consensus is for GDP growth to accelerate in Q2 and for the economy to rebound overall in 2024. Recovering private consumption and exports will outweigh slower growth in fixed investment and government spending. Downside risks include lower-than-expected EU fund disbursement and a weaker-than-anticipated recovery in external demand, plus higher-for-longer interest rates.

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