Economics: No Need to Lower GDP Forecast
While second quarter data prompted upward revisions to the 2017 GDP forecasts of some analysts and authorities, many have begun scaling back those estimates as evidence of a weakening of consumption and investment have emerged over the course of the third quarter. Some have gone as far as to warn that the economy could slow well below what they had been predicting as recently as July and August.
The waning of consumption growth precursors is something we at GEA have been emphasizing for some time, but we see no reason to believe the decline in purchases will be as pronounced nor have the dire economic impact that others now fear. We are sticking by our 2017 growth forecast (2.1%), which implies a seasonally adjusted 1.7% rise during the second half, as stalling consumption is likely to be offset by momentum in non petroleum exports, especially in the case of manufacturing shipments.
Even as remittance inflows falter, formal sector hiring has sufficed to stimulate consumption despite a softening of compensation. The strength of non oil exports, which expanded 9.4% during the first half of the year, foreshadows an important rise in manufacturing GDP, assisted by the recovery in US manufacturing output that we expect will extend through 2017.
This rise in exports and manufacturing output is likely to be sustained largely due to the extent of installed productive capacity. The higher levels of spending on machinery and equipment, especially imported M&E in recent months, mostly involved efforts to replace depreciated fixed capital.
Major expansion and investment plans will materialize only once there is greater certainty as to how Nafta negotiations will conclude and we get past the political uncertainty posed by the 2018 presidential elections. Nor do we expect the September 19 earthquake to significantly detract from 2017 GDP. Though the earthquake destroyed considerable private assets, especially homes, these do not enter into GDP growth calculations, unlike the ensuing real-estate transactions and reconstruction expenditures that could add to activity.
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