Macro and Politics

* The sequential (seasonally and calendar-adjusted monthly figure) industrial production (IP) index declined by 1% m/m in August, while calendar-adjusted annual IP contracted by 1.9% y/y. This marked the second consecutive monthly decline in industrial production, consistent with the weakness signaled by foreign trade data and other leading indicators. A breakdown by major industrial sectors shows that manufacturing output fell by 1.6% m/m and 2.5% y/y, while mining and quarrying output increased by 4.1% m/m and electricity, gas and steam production rose by 3.3% m/m. The contraction in manufacturing was therefore partially offset by gains in the other major industrial sectors. The July and August figures point to a pronounced loss of momentum in industrial production during 3Q26. Nevertheless, we believe annual GDP growth could still come in slightly above 3% in the third quarter (around 3.2%), supported by our anticipated increase in agricultural output and contributions from non-industrial sectors. We maintain our 2026 GDP growth forecast at 3.2%, yet we believe that the weakness in industrial production and growing signs of cooling domestic demand have increased downside risks.