Macro and Politics

* The sequential (seasonally and calendar-adjusted monthly figure) industrial production (IP) contracted by 0.8% m/m in March, while calendar-adjusted annual IP declined by 1.1% y/y. Following the rebound recorded in February, the renewed weakening signaled by the March data came broadly in line with our expectations, while subcomponents and high-frequency indicators suggest that the soft underlying trend is likely to persist in the coming period. Across main industrial groupings, the 1.5% monthly decline in capital goods production was the primary driver of the contraction in industrial activity, while the limited monthly increases of 0.2% and 0.6% in intermediate goods and energy production, respectively, point to a broadening slowdown across subcomponents. In addition, the modest 0.3% monthly increase in durable consumer goods production, coupled with the absence of annual growth, indicates that weak domestic demand conditions remain in place. Manufacturing of other transport equipment, which we monitor closely given its inclusion of defense industry products, declined by 1.1% m/m and 1.4% y/y in March. Meanwhile, high-technology production, which tends to display elevated volatility, contracted by 0.2% m/m and 0.8% y/y. The broad-based weakness across underlying components suggests that the loss of momentum in industrial production remains ongoing. Against the backdrop of higher energy prices following the US – Iran war, tightening financial conditions, and weakening global demand, all of which are expected to weigh on economic activity, we have revised our 2026 growth forecast down from 4% to 3.2%. We continue to assess that downside risks to the growth outlook remain elevated.