05.28.2001
1Q01 GDP results surprise on the downside - barely up 1.1% YoY

• On Friday afternoon, the government announced that 1Q01 GDP grew only 1.06%, coming in way below our 2.7% forecast and market consensus of 3.0%. The latest figures are the worst on record since 1Q75's 4.3% decline. Both weak global and domestic demand continue to dampen exports, investment and private consumption growth.

• Private consumption growth, which accounts for 60% of GDP, contracted to 2.02% in 1Q01 from 7.6% in 1Q00 and 3.8% in 4Q00. Government spending was down 7.0% YoY. Meanwhile, private investment shrunk 7.5% YoY in the period, following an 18.42% rise during 1Q00. Government investment was down 7.9% YoY in 1Q01, while public sector investment declined 8.6%. This compares to 9.7% YoY growth in gross fixed capital formation in the same period last year. Overall, domestic demand declined 2.1% in 1Q01 from 1Q00. Exports fell 3.5% YoY, while imports were down 10.0% compared to 1Q00.

• Although the 1Q01 results surprised on the downside, the overall weak outlook is in line with market expectations. As forecast, the government also revised its 2001 GDP growth prediction down to 4.0% from 5.3%. We currently maintain our 2001 GDP growth forecast unchanged at 3.5%. However, we will review our model in light of the newly released figures. We believe that the government's 4.0% full-year growth forecast is too optimistic, especially based on an average GDP growth rate of 5.8% in 2H01. We forecast 2H01 GDP growth will come in at 4.1% at best.

• VB Primasia Opinion: We reiterate our view that based on slowing global demand and weak consumer confidence at home, 1H01 results will continue to disappoint. The index of leading indicators for April, which was just released this morning, also continues to point to a sustained downturn, showing a 'blue light' for the economy. We continue to expect a mild recovery in late 2H01 on the back of the traditional peak export season.

• However, there will be no significant boost to GDP from extra fiscal spending in 2001. Even if the government's additional public spending package gets legislative approval in 2001, it will only feed through to the economy in 2002 at the earliest. As such, the Central Bank's decisions remain key. We maintain that the Bank needs to expand monetary policy more aggressively in order to achieve lower real interest rates.

IrmakSurenkok@Primasia.com +886-[0]2-2547-8873