Q1 slowdown should prove temporary

We doubt that the sharper-than-expected slowdown in quarterly GDP growth from 0.7% in Q4 to 0.3% is a sign of things to come. Indeed, output surveys point to an acceleration in growth at the start of Q2. All three sector PMIs posted increases in April to leave the all-sector PMI consistent with quarterly GDP growth of about 0.6%. And while the PMIs overstated growth in Q1, they had previously understated growth to a similar degree in the final quarter of last year. With other surveys suggesting that consumer spending won’t slow too sharply in the face of higher inflation, and temporary weather-related drags on industrial production set to ease, we expect growth to rebound in Q2. As a result, we are sticking with our forecast of annual GDP growth of 2.0% in 2017, implying average quarterly gains of 0.5% in the remaining three quarters.