Real GDP growth dropped to a six-year low of +5% y/y in Q2 (April-June 2019), weighed down by a slump in manufacturing (+0.2%) and modest expansion in agriculture (+2%). On the demand side, the deceleration was broad-based, with private consumption growth down to +3.1% y/y (+7.2% in Q1), public consumption to +8.8% (+13.1% in Q1) and real exports of goods and services to +5.7% (+10.6% in Q1). In nominal terms, exports of goods even shrank by -1.7% y/y in Q2 after a +6.7% increase in Q1. Looking ahead, the budget of the fiscal year (FY; running from April to March) 2019-20 as well as a high level of public debt (just under 70% of GDP) leave little room for more stimulus. However, given currently low inflation (3.1% y/y in July) there is policy space for further interest rate cuts (after already four cuts YTD) to lift economic activity, though currency weakening would be a downside risk in that case. We have revised down our GDP growth forecasts to +5.3% in FY2019-20.
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Weekly Export Risk Outlook 4 September 2019