External demand starting to lose steam

Households consumption entered positive territory (+0.5% q/q) due to a gradual improvement of the labour market. Retail trade was flat as compared to the previous quarter, while agriculture increased by 2.5% q/q which might suggest an important contribution of self-consumption to households consumption. Investments advanced by 0.2% q/q. Exports fell steeper than imports (-5.7% q/q as compared to -1% q/q) in line with disappointing economic growth data in traditional Eurozone partners like Germany, Italy and France.

We decided to put under revision our economic growth forecast for 2011 (currently at 2%) due to a deteriorated global environment and a still weak domestic demand. Our scenario shows that the NBR will keep the key rate flat at 6.25% in 2011-12. Lower inflationary pressures and a negative output gap outweigh the fiscal risks stemming from the 2012 elections.

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