Economy gains momentum in the first quarter

Economy gains momentum in the first quarter

A second national accounts release confirmed that the economy gained steam in the first quarter, expanding 5.4% year on year. Q1’s result was above the 4.9% increase logged in the fourth quarter of last year and beat market expectations. On a seasonally adjusted quarter-on-quarter basis, economic growth ticked up to 1.0% in Q1 from the previous quarter's 0.8% expansion.

A second national accounts release confirmed that the economy gained steam in the first quarter, expanding 5.4% year on year. Q1’s result was above the 4.9% increase logged in the fourth quarter of last year and beat market expectations. On a seasonally adjusted quarter-on-quarter basis, economic growth ticked up to 1.0% in Q1 from the previous quarter's 0.8% expansion.

From a production point of view, the upturn chiefly reflected a robust industrial sector performance. Mining and quarrying rebounded in the quarter and rose at a two-year high of 1.4% year on year (Q4 2023: -1.5% yoy), while manufacturing output growth accelerated to 9.0% from the prior quarter’s 7.2%. In addition, agriculture returned to growth, expanding 0.5% in January–March (Q4 2023: -4.9% yoy). That said, services sector output cooled: The public administration and defense sector swung into a 1.6% contraction in Q1 (Q4 2023: 4.1% yoy), while wholesale and retail trade growth slowed to 11.4% in the first quarter from 13.5% in the three months to December. Absent a breakdown by expenditure, surging inflation and tight financing conditions likely dragged on domestic demand. On the external front, the annual downturn in merchandise exports softened to a six-quarter low, contrasting a double-digit fall in goods imports and suggesting a recovering external sector performance.

From a production point of view, the upturn chiefly reflected a robust industrial sector performance. Mining and quarrying rebounded in the quarter and rose at a two-year high of 1.4% year on year (Q4 2023: -1.5% yoy), while manufacturing output growth accelerated to 9.0% from the prior quarter’s 7.2%. In addition, agriculture returned to growth, expanding 0.5% in January–March (Q4 2023: -4.9% yoy). That said, services sector output cooled: The public administration and defense sector swung into a 1.6% contraction in Q1 (Q4 2023: 4.1% yoy), while wholesale and retail trade growth slowed to 11.4% in the first quarter from 13.5% in the three months to December. Absent a breakdown by expenditure, surging inflation and tight financing conditions likely dragged on domestic demand. On the external front, the annual downturn in merchandise exports softened to a six-quarter low, contrasting a double-digit fall in goods imports and suggesting a recovering external sector performance.

Our panelists expect annual growth to have slowed significantly in the second quarter. Moreover, our Consensus is for GDP growth to cool in 2024 as a whole from 2023. The fallout of the Russia-Ukraine war will continue to weigh on activity, outweighing a shallow rebound in exports. That said, economic activity growth will still roughly align with the Central Bank’s estimate of 2.5–3.5%.

Our panelists expect annual growth to have slowed significantly in the second quarter. Moreover, our Consensus is for GDP growth to cool in 2024 as a whole from 2023. The fallout of the Russia-Ukraine war will continue to weigh on activity, outweighing a shallow rebound in exports. That said, economic activity growth will still roughly align with the Central Bank’s estimate of 2.5–3.5%.

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