Economic growth slowed down to +0.4% q/q in Q4 2017 (from +0.7% in Q3). Final consumption accelerated to +1.1% q/q (from +0.4%) on the back of higher households spending (+1% q/q) and government consumption (+1.7% q/q). Investment contracted in Q4 2017 (-1.2% q/q) reflecting a decline in business investment (-2.2% q/q). Exports contracted by -1.8% q/q. Inflation edged up slightly to +1.9% y/y in Q4 2017 (from +1.8% in Q3). Looking ahead, business surveys, namely the Manufacturing and Services PMIs, still suggest solid growth. Private consumption is underpinned by a continued rise in compensation and positive job creation. Yet, pockets of risk do remain with high household debt. We expect the authorities to adopt a balanced policy mix with a gradual rise in the policy interest rate (+0.25pp in 2018) to tame financial and inflationary risks as well as supportive fiscal policy to keep growth stable (+2.4% in 2018, similar to 2017).
