Q3 started on a disappointing note. Industrial production growth was stable at +6% y/y in July. But both retail sales (+8.8% y/y in July, down from +9% in June) and investment growth (+5.5% y/y in January-July, after +6% in January-June) slowed. Trade remained resilient despite fresh U.S. tariffs, with a surplus of USD28.1bn (after USD41.5bn in June). USD-denominated exports rose +12.2% y/y in July (+11.2% in June) while imports accelerated to +27.3% y/y (from +14.1%). Looking ahead, leading indicators are not particularly encouraging. Both the official Manufacturing (to 51.2 from 51.5 in June) and Non-manufacturing PMIs (to 54.0 from 55.0) edged down in July, with the new export orders’ sub-component signaling a contraction of activity in the short run. And risks are elevated given that the U.S. considers a new wave of tariffs on USD200bn of imports from China. Supportive measures have already been announced to keep growth in check in the form of higher infrastructure spending and liquidity injections into the banking system. Against this background, we expect GDP growth to slow to +6.6% in 2018 (from +6.9%).
