Recovery under way
Growth fell 4.5% y/y in 2020, reflecting mostly the contraction in domestic demand through mid-year. Household consumption and investments fell 4% y/y and 12.7% y/y, respectively, shaving a total of 5.8pp from headline GDP. Despite the 16.6% y/y decline in G&S exports, the 14.3% y/y drop in imports allowed for a slightly positive net export contribution. Government spending barely inched into positive territory.
High-frequency indicators suggest a solid recovery in 1Q21, with industrial production recovering faster than retail, but the key positive impact early in the year could come from the net export performance, as goods exports surged 16.6% y/y in 1Q, alongside just 2.7% y/y growth on the import side. Overall, we lift our FY21 GDP forecasts by 1.5pp to 4.5% y/y, but stress that several risks remain.
Depressed domestic demand and the subsequent plunge in global oil prices resulted in deflation, as prices fell 1.1% y/y on average in 2020. The temporary mismatch between global demand and supply could lead to some shortages on the supply side, which will push prices higher. We forecast prices to rise 1.9% y/y on average this year.
The initial emergency fiscal response alleviated the pandemic effect but pushed the fiscal gap to an estimated 5.3% of GDP. Fiscal support should continue this year but become more targeted. This year’s gap is seen at 4.5% of GDP, but overall indebtedness remains relatively low. There has been no progress in talks with the IMF regarding the new financial arrangement.