Real GDP in Q2 came in at +1.4% yoy (-1% qoq) significantly below our expectations (3.2% yoy, 0.5% qoq) and market consensus (3.4% yoy according to a Thomson Reuters Survey published on 8 August).
Although the deceleration of the economic activity was already visible to some extent in quarterly dynamics of the short term indicators, the plunge in quarterly GDP came as a large negative surprise. Furthermore, data published today by Eurostat shows that quarterly dynamics in Q1 was revised downwards to -0.2% qoq from 0.2% qoq previously.
On the demand side, retail sales data (-0.1% qoq) indicated that private consumption had a poorer performance in Q2 than in Q1. After it ceased to be a main driver of growth in Q1, net export probably had a negative contribution to quarterly dynamics of GDP in Q2, as hinted by foreign trade data released at the beginning of this week.
However, all these factors are not sufficient in our view to explain such a large drop in quarterly terms (-1% qoq). Therefore, we expect that first estimates for the dynamics of GDP components in Q2 that will be released on 3 September to show a very poor performance of investments. The execution of the public budget for the first half of the year already indicated a plummet down in public investments. Private investments should have had also a poor performance in Q2, as foreign direct investments fell by -10.3% yoy in H2 2014.
On the supply side, industry probably had a positive contribution to quarterly dynamics, as industrial output advanced by +1.1% qoq in Q2. The construction sector continued to post poor performance in Q2, construction works remaining in the contraction territory for the third consecutive quarter (-1.0% qoq). Market services rendered for population situated also in the negative territory (-1.3% qoq). Agriculture has a minor impact on GDP dynamics in the second quarter of the year.
Immediately following the release of real GDP figures in Q2, RON manifested some depreciation pressures, but these calmed down shortly afterwards.
Also, yields of RON T-securities declined by several basis points, but this development should be judged in the context of poorer than expected real GDP data releases in main euro area countries.
Looking ahead, today’s data seems at odds with our baseline scenario that assumed domestic demand would continue the strong performance from Q1 and the structure of growth will shift from external to internal drivers. Also, the figures notably below expectations, both in quarterly and annual terms, put at risk our annual forecast for a real GDP advance of 3.5%. After detailed data will be available, we would probably revise our forecast to below 3%. We still expect real GDP to recover in Q3 and preserve an upward trend in Q4 due, among other factors, to agricultural output which seems to have a better than expected performance. On the other hand, the central bank might continue with the easing of the monetary policy stance taking into account poor figures of real GDP growth in Q2.