Softer Q3 growth raises full-year downside risk

From AB Capital's The Opening Bell: Three Moves

Event

BMI sees weaker-than-expected momentum entering 3Q26, putting its 3.3% full-year gross domestic product (GDP) forecast at risk. After just 2.6% growth in 1H26, the economy needs at least 3.9% growth in 2H26, making the pace of fiscal catch-up increasingly important.

View

We think the key issue remains public investment execution. BMI estimates weaker 3Q26 capital spending could shave around 0.2pp from full-year growth, lowering its forecast to 3.1%. Elevated inflation, 6% unemployment and weather disruptions also suggest household consumption is unlikely to provide much offset.

Catalyst

Manufacturing and exports remain supportive, but they may not fully compensate for weak investment and consumption. July-August capital outlay data are therefore the clearest near-term catalyst. A stronger fiscal ramp-up would protect the 3.3% case, while another weak quarter would materially raise downside risk.

Action

In our view, the softer growth backdrop reinforces a selective stance on domestic cyclicals and consumer exposure. We would favor defensives, exporters and banks with stronger asset-quality buffers, while waiting for clearer evidence of fiscal execution and household demand recovery before becoming more constructive on broad domestic beta.

Disclaimer: The information, analyses, and views contained herein is based on sources which we, AB Capital Securities, believe are reliable, but is not guaranteed by us and is not to be considered all inclusive. It is not to be construed as an offer or solicitation of an offer to sell or buy the securities herein mentioned. AB Capital Securities and its Directors and Officers and/or members of their families may have a position in the securities herein mentioned and may make purchases and/or sales of the securities from time to time in the open-market and otherwise.