Data released today showed Industrial Production (IP) declined 1.3% y/y in May, a number above expectations. Analysts at BBVA Research see that despite the limited downside risks stemmed from geopolitical and policy uncertainties on activity, the current positive momentum, expected easing in financial conditions and favorable base effects from now onwards could weigh more. Hence, under the assumption of no additional shock, they expect 0.3% GDP growth for 2019.
Key Quotes:
“The annual contraction in IP (c.a.) decelerated further from -4.7% in 1Q19 to -2.6% in the first two months of 2Q19. Besides, May IP increased by 1.3% mom in calendar and seasonal adjusted terms, signaling that the moderation observed in April could be temporary. Our monthly GDP indicator confirms this trend as it nowcasts a growth rate of 0.4% yoy in May (91% of info) and 1.2% yoy in June (32% of info).”
“Despite the downside risk on the back of long Bayram holiday in June (-4 working days in supply side indicators), high frequency indicators began to reconfirm the recovery trend as of June and reducing the likelihood of a “W” pattern.”
“On top of that, strong base effects of the second half of the year and expected easing in both external and internal financial conditions would support the economic activity in the coming period. However, the complacency should be ruled out with prudent and comprehensive policies to enhance confidence as the geopolitical and policy uncertainties still remain.”
“In absence of new shocks, we maintain our GDP growth forecast at 0.3% for 2019.”
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