Industrial Production (IP) grew by 66% YoY in calendar-adjusted terms in April, implying 65% YoY growth in unadjusted series, which were boosted by base effects. The month-on-month figure showed a contraction (-0.9%) for the first time since April 20 but the adjustment still remained limited. Retail sales also indicated some deceleration with a 6.3% monthly decline (still a 42% YoY rise). April figures implied some correction due to the lock-down measures at that time but once the economy reopened in mid-May, the slow-down still isn't clear in 2Q as our high-frequency indicators have confirmed. Our monthly GDP indicator nowcasts a yearly growth rate of near 24% as of early June (33% info), reflecting still a moderate posi tive QoQ growth for 2Q. Uncertainties on tighter financial conditions and potential indirect effects from the employment once the temporary ban on firings will be finalized could still result in an adjustment in the second half of the year. Even with that, strong momentum so far and recent upward revisions in global growth clearly reinforce risks on the upside for our prudent 2021 GDP growth forecast of 5%.
Relatively stronger manufacturing sector limited further adjustment in IP
Seasonal and calendar-adjusted IP contracted by 0.9% mom in April, being led by intermediate (-2%) and consumption goods (-1.6%) while capital (+2.1%) and energy (+0.4%) goods production remained supportive. On the sectoral side, the production of the main subsectors all shrank (mining -4.1% mom, manufacturing -0.7%, and electricity -1.3%) but a relatively limited decline in the manufacturing sector prevented further deterioration. The deceleration in the manufacturing sector was uneven as food (-4.9% mom) and motor vehicles production (-3.8% mom) were the main downside factors whereas computer and electronics (26.6% mom) and basic metal production (2.3% mom) was balancing sectors. Taking into account the extended lockdown measures ti l l mid-May and the decline in leading indicators (May PMI 49.3, capacity utilization rate declining to 75.2%, and recent monthly contraction in electricity production), IP could decline further in May (Figure 3). However, the faster correction after the reopening as confirmed by our Big Data indicators, the activity could still recover slightly in June. As a result, our monthly GDP indicator confirms a continuation of robust activity in 2Q by nowcasting 24.3% YoY GDP growth in June with 33% of the information. Our demand subcomponents also revealed that domestic demand remains strong on the back of both consumption and investment, while the contribution of net exports increased further.
Strong activity in 1H21 increased upside risks on our 2021 GDP forecast
Despite tighter financial conditions, partially continuing lockdown measures, and downside risks on tourism revenues, yearly GDP growth might reach near 15% in 1H21 due to still strong domestic demand and some recovery in external demand. Sizable carry-over impact fed by the current solid momentum and expected further pick-up in global economic activity put clear upside risks on our prudent GDP forecast of 5% for 2021.
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