The labor market is overheating, the wider economy not yet
Strong growth...
The economy continued to boom in Q1 2018. Real GDP grew by +4.4% y/y, the same pace as in the previous quarter and stronger than in 2017 as a whole (+4%). Growth in Q1 was driven by domestic demand, notably fixed investment which surged by +17.1% y/y, fueled by a strong absorption of EU investment funds, which we expect to continue in the coming quarters. Consumer and public spending also rose rapidly by +5.1% and +4.6% y/y, respectively. In contrast, external trade activity weakened markedly on softening demand from the Eurozone. Exports expanded by just +3.5% y/y and imports by +3.8% in Q1, less than half the paces reached in 2017. Advanced indicators suggest that the momentum has eased slightly but remained overall robust in Q2. In April-May, industrial production growth slowed to +3.3% y/y, reflecting the cooling external demand, while retail sales growth (+6.8%) remained buoyant, indicating continued sound consumer spending. Overall, we forecast +3.8% GDP growth in 2018 as a whole.
