Negative Q2 GDP spurs more worries of technical recession

Official forecast full year growth range of 1-3% more likely to be revised downward, says Nomura.

The government's flash estimates indicated that Q2 GDP growth declined 1.1% q-o-q saar after rising 9.4% in Q1.

According to Nomura analyst Euben Paracuelles, this negative print suggests the economy is losing
momentum and will likely again spur worries of a technical recession given the low visibility in the H2 outlook.

On a year-on-year basis, Q2 GDP growth increased to 1.9% from 1.4% in Q1, bringing first half growth to 1.7%.

"The risks to our full year 2012 GDP forecast of 2.7% remain heavily skewed to the downside. We think this also raises the likelihood of a downward revision of the official forecast range, currently at 1-3%," he said.

The weakening in growth momentum was broad-based. As expected, the manufacturing sector did not
sustain the strong growth from Q1, declining 6% q-o-q saar after soaring 20.9% in Q1.

A similar picture is true for the construction sector which was up a mere 0.3% from 27.9% in Q1.

Importantly, Mr Paracuelles noted that the slowdown in the services sector appears to be gathering steam, growing by only 0.4% from a revised 2.7% in Q1.

The revision of Q1 services sector growth to 2.7% from 4% was the primary factor in the downward revision of headline Q1 GDP.

Details of the revision have not yet been provided, but according to the press release it was led by the wholesale and retail trade and financial services sectors.

"Our monthly GDP composite index predicted this, particularly for trade related services, which was a key factor in our weak Q2 forecast," said Mr Paracuelles.

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