According to the GNP/GDP data released today, the acceleration in economic activity has significantly surpassed the market consensus in 3Q05: GDP and GNP grew by 7% and 7.3%, respectively, significantly ahead of respective consensus estimates of 5.5% and 5.4%. Inclusive of third quarter data, GDP and GNP growth rates reached 5.5% yoy, suggesting that economic growth would be in line with our forecast of 5.8%, with risk to the upside relative to our expectation.
The remarkable acceleration in economic growth could only be partly attributed to the low base effect. The main factor underlying the acceleration has been private consumption, which grew 11.2% yoy, or 3.2% with respect to the prior quarter, marking the highest seasonally adjusted growth rate since 1Q04.
The vibrant pace of investment expenditures in the public sector continued in 3Q05, while the private sector consumption accelerated to 26.7% following annual growth rates of 4.8% and 15.8% in the first two quarters.
Unlike the last three years, the contribution of inventory build-up, which had contributed to growth significantly since the 2001 crisis, remained muted. The impact of net exports (of goods and services) has been positive, mainly due to seasonal factors.
On the production side, industrial production rose by 5.6% yoy, which was significantly above the growth rate (4.5%) in the quarterly industrial production index. In line with this performance, trade and transportation grew by 7.1% and 7.4%, respectively. The contribution of construction remained significant with a growth rate of 19.7%, close to the average growth recorded in the first two quarters.
We believe that economic growth will be around 6.8% in the last quarter of the year, leading to an annual growth rate of around 5.8% in 2005. Thus, we maintain our 2005 forecast at 5.8%, though underlining that the risk of any deviation is to the upside.
The acceleration in consumption -- especially in durable goods -- and the high growth in construction have been stimulated mainly by declining interest rates. So far, this has not prompted a marked acceleration in inflation in these sectors. However, the 11% growth in private consumption could be a cause for concern from the CBT's perspective, due to its lagged impact on prices in durables.
We expect the announcement effect to be positive for the equity market, while higher than expected and consumption driven growth may strengthen expectations that the CBT could suspend rate cuts. |