The GDP numbers came in spot on our 5.2% y/y estimate and gently above the 5.0% y/y market consensus but even despite the slightly surprising growth structure the data failed to bring about a significant reaction from bonds. Taking a closer look at the data, the rebound in growth was driven by strong domestic demand (which increased by 4.5% y/y), mainly robust private consumption, which is not really surprising given the strong retail sales numbers in the first three months of the year. At the same time investments grew by a disappointing 7.8% y/y, down from 9.7% y/y in Q4 2005 while net exports once again contributed positively to economic growth (contrary to common expectations).
The upswing in consumption might fuel medium term inflationary pressure fears but at the same time the rather soft investment growth (which was resulted to some extent from the extremely difficult weather conditions early in the year) could raise doubts concerning the sustainability of the 5 percent growth rate in the longer term perspective. All in all however, we believe the data change little in the overall economic outlook and as they are only gently higher than envisaged in the recent inflation projection, are also neutral as far as monetary policy is concerned. GDP growth should remain solid and noninflationary in the coming quarters – we believe a sub 5% y/y result for the entire year seems the most likely scenario at the moment.