Economic growth inches up to one-year high in Q2

GDP growth acceleration beats market expectations: GDP growth accelerated to 5.5% year on year in the second quarter, up from 5.4% in the first quarter and marking the strongest print since Q2 2024. The reading slightly exceeded market expectations; stable GDP growth had been priced in. On a seasonally adjusted quarter-on-quarter basis, economic growth gained traction, rising to 1.5% in Q2, following the previous period's 1.2% and marking a near two-year high.

Exports and household spending fuel Q2’s upturn: Domestically, private consumption was the chief driver behind the uptick in annual GDP growth, improving to a 5.5% year-on-year expansion in the second quarter (Q1: +5.3% yoy). Government consumption growth, however, moderated to 8.7% in Q2 (Q1: +18.7% yoy). Moreover, fixed investment slowed down to 2.6% in Q2, marking the worst result since Q1 2024 (Q1: +6.5% yoy). On the external front, exports of goods and services increased 4.4% on an annual basis in the second quarter, which was below the first quarter's 7.1% expansion. However, imports of goods and services growth—which contributes negatively to GDP—decelerated to 2.9% in Q2 (Q1: +10.3% yoy). As a result, net trade contributed positively to overall GDP growth after having declined in the prior quarter.

Economy to power through to the end of 2025: Our Consensus is for annual GDP growth to hover near H1’s average in the remainder of the year. Lower interest rates should support domestic demand, but higher U.S. tariffs from August onwards, plus the fading boost of order frontloading earlier this year, are set to weigh on exports. Weaker-than-expected external demand is a key downside risk.

Panelist insight: ING’s Deepali Bhargava commented on the outlook: “Looking ahead, cautious private investment is likely to weigh on growth, while consumption may remain resilient amid falling inflation and tight labour markets. Export momentum is expected to fade in the second half of the year, in line with regional trends. The pace of infrastructure project execution will be a key determinant of growth in the coming quarters.” Nomura’s Nabila Amani and Euben Paracuelles said: “We maintain forecast that GDP growth will slow [this year from 2024], below the government’s projection of 5.5-6.5%, which was revised last month from 6-8%. […] We believe private investment spending will be more subdued, as businesses turn more cautious owing to surging global trade policy uncertainty and an increasingly challenging operating environment. In the same vein, we expect goods export growth to slow due to the impact of US tariffs, but acknowledge rising downside risks particularly from sectoral tariffs on semiconductors in the coming quarters.”

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