The GDP growth for the first quarter in 2013 is bad. The economy in the period grew by only 4.1% from a year ago, which is a marked slowdown from 6.5% year-on-year growth in the fourth quarter. Despite the high 6.5% growth, the fourth quarter GDP figures were problematic. An anomaly pushed the growth in that quarter up.
The latest quarter has no such anomaly and so, the headline number does a better job in describing the economy this time around. Just to give context how bad the number is, the market had expected growth to be above 5.0% year-on-year with the median as compiled by Bloomberg being 5.5% year-on-year. You can compare the latest growth rate to previous rates in the chart below; 1Q growth is the lowest since the fourth quarter of 2009 which was right at the tail end of the 2009 global financial crisis.
Just earlier, France officially went back into recession with Germany barely grew after having its economy contracted in the last quarter.
Indeed, the reason for the slow growth was net exports. It was down by 36.6% y-o-y in real terms:
Of course, this is not the first time net exports dropped like a rock from the 7th floor. With Europe and China in trouble, exports have trouble growing. If it was not for strong growing demand from Southeast Asia and the United States, it would have been far worse.
But there is some good news. Private consumption growth accelerated to 7.5% year-on-year from a low 6.2% year-on-year. Domestic consumption growth was very much supported by consumption growth; domestic consumption growth accelerated to 8.2% year-on-year from 7.8% year-on-year.
The fact that consumption has been strong is partly the reason why net exports dropped. Consumption growth means import growth and boy, did imports grow.
I am not sure why consumption grew as it had grown. The way I looked at it, imports of consumption goods and industrial production were bad. I had expected consumption to not perform as well as it had. What was it? Minimum wage? Cash transfer? I did see MIER’s consumer sentiment spiked up but that does not explain much. I hope somebody else would be able to enlighten me on this.
Another thing that came as a surprise to me is the practically non-growth of government expenditure. I had expected all those heavy electioneering to boost government spending but it did not. In fact, government spending dropped in nominal terms! It may appear that the government may be on target to reduce the deficit ratio after all. Hurrah!
It will be interesting to see the actual federal government expenditure number later on, which is different from the GDP component.
As for investment, it was high and that made it hard for it to grow any faster. There was a one-time jump and that was it:
That one time jumped led to the 26.6% year-on-year jump in 2Q2012. Investment growth has been stuck at that level ever since. The next quarter… or rather this quarter, faces the risk of investment contracting, unless there is something big coming in our way. I do not see anything big coming in the second quarter, yet.
So, after all that has been said and done, the 4.1% is bad, but it is not as bad as it looks.
I mean what is not to like?
Consumption grew well and government expenditure was stable. I like this 4.1% growth better than the “fake” 6.5% growth in 4Q2012.
p/s — federal government expenditure actually grew by 9.3% y-o-y in 1Q2013 and revenue was down 8.6% y-o-y. Fiscal deficit ratio for the quarter was 6.4%. It is an improvement from 8.7% deficit in 4Q but I am unsure about the government lowering its deficit now.
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