Economy unexpectedly escapes contraction by a whisker in Q1

Economic growth slows to a near-halt in Q1: GDP rose a mere 0.1% on a seasonally adjusted quarter-on-quarter basis in Q1, decelerating notably from the prior quarter’s downwardly revised 0.4% rise. Still, the result topped market expectations of a slight decline. On an annual basis, GDP growth held steady at Q4 2024’s downwardly revised 0.8% in Q1, marginally above market expectations.

Softer export and household spending growth and dismal investment behind slowdown: The quarterly deceleration was driven by weakening growth of private consumption and exports, plus a more severe fixed investment downturn. Private spending—which accounts for roughly two-thirds of GDP—increased 0.4% on a seasonally adjusted quarter-on-quarter basis in the first quarter, which was below the fourth quarter's 1.1% expansion. This was likely due to a higher unemployment rate and inflation in Q1. Meanwhile, public consumption dropped at a slower rate of 0.1% in Q1 (Q4 2024: -0.8% s.a. qoq), which partly offset the sharpest decline in fixed investment since Q3 2023 (Q1 2025: -1.7% s.a. qoq; Q4 2024: -0.5% s.a. qoq). Turning to the external sector, exports of goods and services increased 1.0% on a seasonally adjusted quarterly basis, which was below the fourth quarter's 2.1% expansion. Conversely, imports of goods and services growth sped up to 2.0% in Q1 (Q4 2024: +1.3% s.a. qoq). From a production point of view, improvements in the agricultural, finance and transport sectors were partly offset by contractions in the manufacturing and mining sectors.

GDP growth to gain steam but remain underwhelming ahead: Our Consensus is for sequential GDP growth to gradually inch up over the rest of the year. Overall in 2025, our panelists expect GDP growth to more than double from 2024’s level. That said, growth will undershoot the 10-year pre-pandemic 1.7% average. Lower inflation and interest rates, coupled with stronger wage growth, will be the engines of growth in 2025, buttressing purchasing power and leading to faster private spending growth and a rebound in fixed investment. Moreover, exports of goods and services should regain ground after shrinking in 2024. That said, challenges remain; interest rate cuts and reforms implemented by the business-friendly governing coalition might not be enough to significantly spur growth as longstanding structural roadblocks—namely sky-high unemployment and logistic bottlenecks in ports and the rail network—have only eased slightly. Moreover, extreme weather, renewed power cuts and fragile ties with the U.S. are downside risks to the outlook.

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