Manufacturing's unsustainable pickup in May to drag Q2 GDP growth

This adds further downside risks to Nomura’s 2012 GDP growth forecast of 2.7%, which is already below potential.

Nomura said that the industrial production index (IPI) rose by 6.6% y-o-y in May after falling 0.3% in April (Consensus: 6.1%, Nomura: 7.0%). However, an update of the monthly GDP composite index, taking into account the April-May data for several macro indicators including IPI, suggests that GDP growth seems to be moderating in Q2 from 1.6% y-o-y in Q1.

Here’s more from Nomura:

This will likely again be led by the services sector (particularly financial and retail services), but even within manufacturing the pick-up in IPI in May looks unsustainable. In fact, the risk is that it could reverse sharply in June given that the pickup in May was driven by volatile biomed output (ex-biomed, IPI growth was only 2% y-o-y), dragging Q2 growth in the process.

This adds further downside risks to our 2012 GDP growth forecast of 2.7%, which is already below potential (3-5% according to MAS estimates).

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