Slightly improved performance of households consumption in 2Q10

Households consumption went up by 0.8% q/q. This good performance could be ascribed to a tentative recovery of the private segment of the labour market, especially the economic areas that were more dependent on external demand (gross value added in industry advanced by 4.2% q/q). Overall, the number of registered unemployed people declined by 50,000 in 2Q10 against 1Q10. Government consumption shrank by 4% q/q following some cuts in current public expenditures. Gross fixed capital formation fell 4.4% q/q but inventories had a positive contribution to the economic growth. Imports (+4.9% q/q) were faster than exports (+2.0% q/q) and it seems that the future economic recovery will be accompanied by a minor widening in the trade deficit as domestic production does not match entirely the demand.

Economic growth could enter again negative territory in q/q terms is 3Q10 in the context of the ambitious austerity package implemented by the government (a 25% cut in public wages, a 5 pp hike in VAT to 24% and the reduction of some social allowances and public subsidies as of July). In light of the most recent data, we see some chances of a slightly better performance at the end of 2010 as compared to our baseline scenario of -3%.

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