The 3Q2017 GDP grew better than expected by 0.4%, suggesting the resilience of the economy. The growth was supported by the services sector, which accounts for 80% of the GDP, manufacturing as well as mining and quarrying, compensating for the poor performance from construction. We project the 2017 GDP at 1.5%.

Despite the GDP growth, the estimated annual growth rate is below the 1.8% achieved in 2016 and the slowest since 2012 due to low productivity which is 18% below its 2007 high, hence limiting the room for wages to improve. Though the latest GDP figures bring some comfort, there could still be storm clouds ahead as some businesses have issued warnings on future profits. Still, we feel the latest figures have probably sealed the deal on an interest rate hike next week.

• The 3Q2017 GDP grew better than expected by 0.4% compared to 0.1% in 2Q2017, suggesting the resilience of the economy. The services sector, which accounts for 80% of the GDP, expanded at the same pace as in 2Q2017 by 0.4%, largely coming from business services and finance sector, which climbed by 0.6%.

• Industrial production also rose by 1% in 3Q2017, boosted by a 1% increase from manufacturing and 1.5% rise from mining and quarrying. The gains helped compensate a lacklustre performance from construction which fell by 0.7% – the lowest drop since the third quarter of 2012.

• Of interest is the unexpected bounce in manufacturing growth because manufacturing optimism slumped noticeably during this quarter. A weakened pound has helped lift the export mood recently alongside robust consumer spending which is at a six-month high in September.

• Despite the GDP growth, the estimated annual growth rate is below the 1.8% achieved in 2016 and the slowest since 2012 due to low productivity which is 18% below its 2007 high. We project the GDP at 1.5% for 2017. If productivity is not improving, it is hard to witness an improvement in wages.

• Taken together with the levels of growth recorded in 1H2017, this is the weakest expansion since 2009. While the latest GDP figures bring some comfort, there could still be storm clouds ahead as some businesses have issued warnings on future profits. Still, we feel the latest figures have probably sealed the deal on an interest rate hike next week.

Source: AmInvest Research - 26 Oct 2017