Technical recession looms in 3Q12: DMG

The analyst has revised down its 2012 GDP forecast to 2.6% from 4% previously.

According to DMG, the advanced estimates (computed largely from April and May data) point to the economy losing momentum on the back of external weaknesses brought about by the protracted problems in the Eurozone and lackluster US economy.

OSK-DMG said:

More importantly, it appeared that the weaknesses in the external sector were beginning to spillover to the services sector via the trade- and finance-related segments. This suggested that a technical recession could be looming in 3Q12.

However, we are not building in such a scenario into our forecast as we expect to see a rebound in biomedical output (on the back of stronger pharmaceutical demand) and a rebound in Chinese growth (as a result of recent monetary easing and fiscal boost) to lift GDP in 2H. Nevertheless, with economic growth disappointing in 2Q and 1H real GDP coming in below our expectations (of 2.3%) at 1.7%, we have revised down our 2012 GDP forecast to 2.6% from 4.0% previously.