Restrictions to weigh on first-quarter GDP growth

The economy gained momentum at the start of the fourth quarter and we have revised up our forecast for fourth-quarter GDP growth to 5.5% annualised, from 4.0%. Given the rapidly deteriorating coronavirus situation, however, we have revised down our forecast for first-quarter GDP growth to 1.0%, from 3.7%. Admittedly, recent history seems to suggest that another round of restrictions could be more disruptive than our new forecasts imply. During the third coronavirus wave, GDP sank by a combined 1.5% over April and May. But that wave coincided with shutdowns in the manufacturing sector, due to the global semiconductor shortage, as well as a temporary drop in oil production, which explains why GDP fell so sharply. By contrast, this coronavirus wave should coincide with increases in manufacturing output now the semiconductor shortage is slowly easing. Accordingly, we are pencilling in a more modest decline in GDP in January, of 0.2% m/m. That means this wave should be more like the second wave around this time last year, when GDP continued to rise because a rebound in energy production offset reduced service sector activity.