Bottom line: The latest GDP data are very confusing and should be handled with care. This is the first time we have seen fourth quarter (Q4) data on their own, and they present a very different picture to the second half (H2) data that the CBS press release (and hence the media reports) focused on. Our starting point is our comment on the Q3 data in November that “the weakness should be offset in the fourth quarter, as exports rebound”. We were right about exports (see below) but weakness in the domestic economy meant that overall growth was not much improved. In the event, Q4 did offset Q3 but, taken together, they produced the mediocre second half performance that the data reflect.
- The headline rate of growth, of 2.3% for Q4, was marginally improved on Q3’s 2.1%. For H2, the rate of 2.8% extends the weakening trend stretching back to 2011.
- The central feature of Q4 was exports, which rose at an annual rate of 21.5% after falling at a rate of 14.1% in Q3.Exports excluding diamonds and start-up companies rose by a stunning 61% annual rate, after falling at a 21.6% annual rate. That’s some rebound!
- Imports rose at roughly a 10% annual rate, the same rate as in Q3.
- Overall for H2, exports posted a slight decline (-1.1%) whilst imports rose at a 9.6% clip, so that the external sector was a drag on second half growth.
The data for the domestic economy make it look weak in Q4, after a so-so Q3. But the key factor at work is a massive drop in vehicle purchases, by both households and businesses, from a peak in July-August. In fact, purchases were pulled forward because of impending tax changes, creating a double distortion – Q3 and even Q2 were artificially boosted and this strength unwound in Q4.
Percentage Quantity Change in Export of Goods and Services, Quarter-on-quarter at annualized rate, Q2 2012 – Q4 2013