GDP growth rose 1.9% in Q1 2012
Indicators are more mixed lately
Rather moderate GDP growth 2012-2013
Fiscal policy key uncertainty in 2013

Q1 2012 GDP rose 1.9% QoQ. There was a positive contribution from private consumption, exports, building investment and stock building that was partly offset by a negative contribution from government spending.


Lately, economic indicators - which had been rather positive at the start of the year - are more mixed. Particularly labor market indicators have been disappointing; only 69,000 new jobs were created in May and the unemployment rate went up to 8.2%. Consumer confidence edged down in April and May and so did retail sales. As expected, there was only a modest gain in business inventories in April. The ISM composite manufacturing index slipped in June below 50. Meanwhile, fuel prices have eased, which will be supportive to consumer confidence. Signs of a recovery in the residential construction sector are getting stronger.


On balance, Q2 growth is expected to be little changed from Q1. In the remainder of 2012, lower fuel prices will boost consumer spending, whereas also government expenditure and building investment will support growth. GDP growth is foreseen to amount to 2.2% in the whole of 2012. A key uncertainty for 2013 is fiscal policy which will be influenced by the outcome of the elections. If the new Congress is unable to reach a compromise on tax reforms and spending cuts, the result could be market tensions and economic disruption. The base case scenario however is for a mild improvement in domestic demand. GDP in 2013 is forecast to rise 2.5%.

Source - EUROFER

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