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Thursday, November 27, 2014

3Q14 GDP growth disappoints as government spending and agriculture drops

Government and agriculture down

3Q14 GDP growth reached 5.3%, below consensus forecast of 6.4%. Weak spending from the government was largely responsible for the below expected GDP growth. During 3Q14, government spending dropped by 2.6%, sustaining the weakness displayed during the first half. For the first nine months of the year, government spending fell by 0.1%. Weakness of agriculture also dragged GDP growth. During 3Q14, agriculture spending fell 2.7%. On the positive side, consumer spending remained resilient while exports continued to grow. Consumer spending increased by 5.2% during 3Q14, after growing by 5.8% in 1Q14 and 5.3% in 2Q14. Exports rose by 9.8% during 3Q14, after increasing by 12.6% in 1Q14 and 10.3% in 2Q14. Capital formation also rebounded, rising by 3.6% in 3Q14, after falling by 2.4% in 2Q14. Growth was driven by the rebound of the construction as construction spending of the private sector increased by 15.7%, offsetting the 6.2% drop in construction spending of the public sector. By industrial origin, the manufacturing industry also remains strong with 3Q14 growth reaching 7.2%.

Maintaining positive long term growth outlook

Despite the disappointing 3Q14 GDP growth number, we maintain our positive longer term view of the economy. As discussed earlier, the weak 3Q14 GDP growth number was largely due to weaker government spending. Unlike in the past, this was not due to the weakness of government finances but rather delays in disbursement of funds. The said problem is easier to address in our opinion. Outside of the government, other drivers of economic growth remained strong. Consumer spending remained resilient, exports continued to pick up, while investment spending rebounded. The manufacturing and construction sectors also continued to grow significantly
- COL Financial

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