GDP UPDATE
August/September 2013
McIlvaine Company
TABLE OF CONTENTS
The U.S. economy grew at an annual rate of 1.7% in the second quarter of this year, better than most economists had expected but still showing tepid economic growth. .
Before the Commerce Department's report of the first look at the country's output of goods and services, many economists forecasted growth of 1% from April to June. A second quarter estimate based on more complete data will be released Aug. 29.
This is the third consecutive quarter of GDP growth below 2%, which is usually too slow to bring down unemployment. There are expectations that the economy will pick up steam in the second half of the year.
In addition to reporting about the April-to-June period, the Commerce Department's Bureau of Economic Analysis revised growth in the first quarter down to 1.1% from 1.8%.
Chief economist Scott Brown of Raymond James said the surprise in the headline 1.7% figure was the contribution from inventories, which accelerated and added 0.4 percentage points to GDP growth.
Consumer spending, at a 1.8% annual rate, was in line with expectations while business fixed investment was slightly stronger than anticipated.
As expected, there was a cut in government spending -- 1.5% annual rate -- though it was a smaller decrease than in the first quarter GDP report when it fell 8.4%. Government subtracted 0.4 percentage points from GDP growth in the first half of the year.
Following this GDP report, the Federal Reserve will release a statement at the end of its two-day meeting, but the central bank is not expected to announce any changes to its monetary policy. On June 19, Federal Reserve chairman Ben Bernanke had discussed plans to moderate its $85 billion a month bond purchases later this year, thereby contributing to higher interest rates.
Interest rates on loans, stock and bond markets react to the Federal Reserve's policies.
Guy LeBas, chief fixed income strategist with Janney Capital Markets, said the Federal Reserve is now simply monitoring whether the economy is not deteriorating to continue plans to taper its bond purchases.
"The question which we've received more than any other is how a stronger GDP release and/or the revisions will alter FOMC thinking. Our short answer is that it won't," LeBas wrote in a note about today's GDP report.
Part of the Federal Reserve's argument in favor of maintaining its simulative bond purchases is the country's stale jobs market.
Also today, payroll provider ADP reported that the private sector created 200,000 jobs in July, better than expected. The ADP report comes two days before the government releases its report on jobs.
The Labor Department last month reported that 195,000 jobs were added in June, with an unemployment rate of 7.6%.
Despite investor jitters and an often searing policy critique by economists, Brazil’s second-quarter economic growth figures could show a solid recovery from 2012’s bitter disappointment.
But Brazil may not be so lucky the rest of the year.
A survey of 12 economists showed a median forecast of 2.6% for year-on-year second-quarter economic expansion and 0.9% versus the first quarter. That would be an advance over first-quarter performance, when Brazil’s gross domestic product expanded 1.9% year-on-year and just 0.6% compared with the last quarter of 2012.
As a whole, 2012 produced a major disappointment, with annual GDP growth of just 0.9%.
The government’s IBGE statistics agency will release data for second-quarter GDP on August 30.
But the second quarter was buoyed by Brazil’s annual grain and oilseeds harvest, a record this year. Industry and services will have to carry the burden during the second half and could be undermined by inflation, high interest rates and declining business and consumer confidence.
“The second quarter is likely to be the best quarter of the year,” said Aurélio Bicalho, an economist at Brazil’s huge Itaú Unibanco Holdings SA. “The agribusiness and service sectors expanded in the second quarter and even industry was fueled by a rise in investments.”
Behind the expansion in industrial activity in the second quarter was a cut in taxes over capital goods acquisitions designed precisely to increase the investment rate. However, the effect from the tax cut is likely to be diluted during the rest of the year by the recent drop in industrial and consumer confidence.
The private Getúlio Vargas Foundation measures both industrial and consumer confidence on a monthly basis. In July, both plunged to four-year lows. Consumer confidence fell from 112.9 points in June to 108.3 in July while industrial confidence declined from 103.8 to 99.6.
“The recent drop in both consumer and industrial confidence raises doubts about economic performance in the second half of the year,” according to economists at Brazil’s Bradesco Asset Management fund in a research report. The 12-month growth rate will gradually decline from the second quarter peak of 2.6% to no higher than 2.3% for 2013 as a whole, according to the economists.
Inflation and monetary tightening will play a big role in the deceleration.
Although recent inflation figures show signs of cooling, the annual rate remains high at 6.15%. The recent depreciation of the Brazilian real versus the U.S dollar will tend to exacerbate inflationary pressures and may force the central bank to maintain its hawkish monetary approach for the rest of the year.
The central bank increased its Selic base interest rate three times so far this year, to the current level of 8.5%, and is expected to impose more increases later in the year.
Even Brazil’s ever optimistic Finance Minister Guido Mantega was obliged this week to pull down his growth forecast. Mr. Mantega said that the government will reduce its growth expectations for 2013 to 2.5% from an already reduced 3.0% and, for 2014, to 4.0% from 4.5%.
Canadian retail sales fell 0.6% in June after a 1.8% gain in May, foreshadowing weaker gross domestic product for the month than initially thought, Statistics Canada data shows.
The effect of floods in Alberta and a construction labor strike in Quebec for two weeks in June had led analysts to expect a decline in retail sales and economic growth in the month. That was expected to be largely matched by a rebound in July, and therefore the Bank of Canada had said it would essentially ignore June's expected economic weakness.
"I guess you don't need to put on new fertilizer when you're under 2 feet of water," said David Tulk, chief Canada macro strategist at TD Securities.
But the strike and flood were only part of the story. While Quebec and Alberta did indeed see retail sales falling 1.3% and 0.6%, respectively, Ontario fell an even greater 1.4% despite higher car sales there.
The volume of sales, which is the relevant indicator for calculating real moves in gross domestic product, fell 1.2%, the biggest drop since December. All figures are seasonally adjusted.
The median forecast for overall retail trade in a Reuters survey was for a 0.4% decline in June.
The Canadian dollar slipped to its weakest level in six weeks against its U.S. counterpart, pressured in part by the retail sales data.
Other indicators for the month have also disappointed, with wholesale trade 2.8% lower and manufacturing sales down 0.5% in dollar terms and 1.3% in volume.
"The Canadian economy looks to have ended Q2 on a very sour note, with GDP contracting about 0.5%," BMO Capital Markets senior economist Benjamin Reitzes said.
Despite the negative retail figure, June's sales were 1.2% higher than April's and up 3.1%from a year earlier.
Economists were still expecting second-quarter GDP to come in above the 1.0% annualized forecast that the Bank of Canada made in July.
Peru's gross domestic product grew 5.6% in the second quarter compared to the same period a year ago on a surge of public spending and investment that offset weak exports, according to the government.
The official 5.6% figure follows GDP growth of just 4.6% in the first quarter - the slowest quarterly pace in more than three years. Last year Peru's GDP expanded by more than 6% in every quarter on an annualized basis.
Peru's fast-paced economy has cooled in 2013 after expanding by 6.3% last year - one of the strongest growth rates in the region. In the first half of 2013 GDP grew 5.2%, the government statistics agency INEI said.
In the second quarter government spending grew 6.8% compared to the same period in 2012, following the first quarter's 5.2% expansion. Investments rose by 8.6%, while in the first quarter it grew 6.6%.
Domestic demand, which has been key in helping the economy offset weaker mineral exports in recent years, slowed slightly from the first quarter to expand a solid 6.7%.
Exports shrank 2.6% in the second quarter, less than the first-quarter's 8.8% contraction.
The government has forecast an economic expansion of about 6% this year but is expected to revise down that estimate soon.
GDP expanded by 1.1% in the second quarter from the previous quarter.
Indonesia’s economy grew less than 6% last quarter for the first time since 2010, adding to risks for the Southeast Asian nation as investments ease, inflation accelerates and the currency slumps.
Gross domestic product increased 5.8% in the three months ended June 30 from a year earlier, the Central Bureau of Statistics said in Jakarta recently. That compares with a revised 6.03% pace for the first quarter and the median estimate of 5.9% in a Bloomberg News survey of 19 economists.
Indonesia’s GDP increased 2.61% last quarter from the previous three months, when it expanded a previously reported 1.41% and compared with the 2.75% median estimate in a Bloomberg survey.
The central bank has lowered its economic growth forecast for 2013 to about 5.8% to 6.2%, from a previous estimate of as much as 6.6%.
Indonesia is contending with easing growth at a time when higher fuel costs spurred the fastest inflation in more than four years and the rupiah trades near the weakest level since 2009. The central bank raised interest rates at the past two meetings in an effort to temper prices and reduce capital outflows, actions that may hurt domestic spending and compound the slowdown in Southeast Asia’s largest economy.
“I expect the weakness to reflect a further downturn in investment, which is likely to spread to a downturn in consumer spending in time, given the subsidized fuel price hike and interest-rate rises,” said Robert Prior-Wandesforde, an economist at Credit Suisse Group AG in Singapore. “While most expect GDP growth to pick up during 2014, we expect it to slow to an average of 5.3%.”
The rupiah was little changed at 10,285 per dollar as of 5.10 p.m. in Jakarta today, according to prices from local banks compiled by Bloomberg. It has dropped more than 6 percent this year, and led emerging-market currency declines in July, data compiled by Bloomberg showed.
Indonesia’s GDP increased 2.61% last quarter from the previous three months, when it expanded a revised 1.42%. That compared with the 2.75% median estimate in a Bloomberg survey. The Statistics Department didn’t say if there are revisions to growth beyond the first quarter. The economy grew 5.92% in the first half, it said.
Indonesia must take proper measures so that growth will not be far off the government’s target, President Susilo Bambang Yudhoyono said in Jakarta after the data, without giving details. Finance Minister Chatib Basri said it would be difficult to meet a 2013 target of 6.3%, and the government needs to speed up its spending in an effort to keep expansion at above 6%.
Government spending increased 2.13% last quarter from a year earlier, after rising 0.42% in the first three months of 2013, the statistics office said. Household consumption grew 5.06% last quarter, after climbing 5.17% in the first quarter. Investment growth eased to 4.67%, from 5.78 percent.
Bank Indonesia raised its benchmark rate by a combined 75 basis points in June and July to bolster the weakening currency and ease inflation pressures after the government increased fuel prices. Consumer prices rose 8.61% in July from a year earlier, after a 5.9% gain in June, according to the Statistics Bureau.
Bank Indonesia is surprised to see the inflation rate so high, and price-gains this year may be above 8%, exceeding the government’s estimate, central bank Governor Agus Martowardojo said. The monetary authority will respond with a policy mix, Martowardojo said, without giving details.
“In order to restrain price pressures and to ease external funding concerns, the monetary-tightening stance is likely to be maintained over the coming months as Bank Indonesia prioritizes economic stability over economic growth,” said Eugene Leow, an economist at DBS Group Holdings Ltd. in Singapore. “The pace of GDP growth in the second half is likely to be muted by Indonesia’s standards, averaging 6% year-on-year.”
The central bank sees expansion this year at the lower end of its forecast range of 5.8% to 6.2%, from a previous estimate of as much as 6.6% Deputy Governor Perry Warjiyo told reporters. Monetary policy will focus on stabilizing inflation and the currency, and keeping the current-account deficit at manageable levels, he said.
When the central bank is confident these targets are achievable, it will move toward supporting growth, Warjiyo said.
The World Bank cut its forecast for Indonesian growth in 2013 to 5.9% from a previous estimate of 6.2% as expansion in China slows. China’s gross domestic product rose 7.5% in April-to-June from a year earlier, down from 7.7% in the first quarter, extending the longest streak of sub-8% expansion in at least two decades.
Foreign direct investment into Indonesia rose 18.9% last quarter from a year earlier, the smallest gain since 2010, government data showed last month. Domestic investment surged 59.1% in the same period.
Overseas shipments fell 4.5% in June, while imports dropped 6.8%, the statistics department revealed. The country is the biggest producer of palm oil, and its commodity exports include rubber, tin and cocoa.
Japan's economic growth will slow to 1.0% in fiscal 2014/15, less than half the pace expected this year, as a planned sales tax hike weighs temporarily on consumption, government forecasts showed.
In fiscal 2013/14, which began in April, Japan's economy is forecast to expand 2.8% as an improving labor market bolsters consumer spending and as policies to end 15 years of deflation start to take hold, the cabinet office said.
That is an upgrade from the government's previous forecast of 2.5% growth.
Prime Minister Shinzo Abe has to decide this later this year whether to carry out a plan that would raise the 5% sales tax to 8% from next April and then to 10% in October 2015.
Private consumption is expected to grow 0.5% in fiscal 2014/15, less than the 2.1% growth forecast for the current fiscal year, the cabinet office said.
The plan to raise the sales tax will add 0.2 percentage point to gross domestic product (GDP) in fiscal 2013/14 as shoppers rush to buy goods before the first tax hike, according to a cabinet office official.
But the tax increase would then subtract 0.6 percentage points from economic growth in fiscal 2014/15 as consumers scale back purchases, the official said.
Overall consumer prices are expected to rise 3.3% in fiscal 2014/15, but excluding the tax hike prices will rise 1.2%, the cabinet office said.
In comparison, overall consumer prices are forecast to rise 0.5% in fiscal 2013/14, the cabinet office said.
The sales tax hike is meant to be the first step towards fixing Japan's public debt, which at more than double annual GDP, is the biggest burden in the industrial world.
Abe has made economic recovery and the defeat of deflation his top priorities, but there are concerns he could delay the pace of tax hikes to avoid a slowdown in growth.
The Bank of Japan unleashed an intense burst of monetary stimulus on April 4, promising to double the supply of money through aggressive asset purchases to meet its 2% inflation target in roughly two years.
Slowing growth and a dwindling current-account surplus are adding to market concerns about Malaysia when capital is flowing quickly out of the region.
The central bank has cut Malaysia's full-year growth outlook, citing weak external demand as gross domestic product grew 4.3% in the second quarter from a year earlier, short of market expectations for a 4.7% rise.
Bank Negara Malaysia projected the economy would grow 4.5%-5.0% in 2013, down from 5.0%-6.0% previously. GDP grew 4.1% in the first quarter on a seasonally adjusted basis.
The cut to the central bank's forecast "is perhaps a pre-emptive step to tamp down market expectation," said Rahul Bajoria, an economist at Barclay's Capital.
Malaysia's current account, a broad measure of trade in goods and services, remained positive in the second quarter but shrank by one-third from a year earlier, to 2.6 billion ringgit ($790 million).
Malaysia's current account hasn't been in deficit since the aftermath of the 1997 Asian Financial Crisis, but the surplus has been eroding quickly as exports slow and government-led infrastructure spending fans appetite for imported construction equipment and other heavy machinery.
Fitch Ratings last month cited the government's deteriorating finances when it cut Malaysia's outlook to negative from stable. The current-account surplus was just 1.1% of GDP in the second quarter, down from 7.9% of GDP at the end of last year.
Its weakening current account has left Malaysia exposed to international capital flows as investors reposition ahead of an end to the U.S. Federal Reserve's extraordinary policy support for the American economy.
Foreign funds have been pulling out of emerging markets as U.S. interest rates rise, hammering current-account deficit countries such as India and Indonesia and sending the Malaysian ringgit to a three-year low against the U.S. dollar earlier this week.
Malaysia's government has built up large debts in recent years—today equaling almost half of GDP—to fund projects such as an urban railway system. Nearly half of government bonds are held by foreigners—a large proportion for an Asian government—and foreign investors sold 6.6 billion ringgit ($2.04 billion) of Malaysian government bonds in June, the largest outflow the country has seen in a single month.
Malaysia's central bank governor, Zeti Akhtar Aziz, said local institutional investors such as the government-backed pension fund and private insurance funds can absorb any selling of Malaysian government securities. She also said the outlook will brighten, a hope shared by policy makers across Asia as the U.S. recovery strengthens and China's economy shows signs of renewed momentum.
The current-account surplus "has narrowed but it's still a surplus and the recovery in external demand will improve this," Ms. Zeti said.
Not everyone shares the optimism.
"We continue to expect further deterioration in the current-account picture due to a combination of strong import demand and reasonably subdued export growth," said Santitarn Sathirathai, a Singapore-based economist at Credit Suisse.
Ms. Zeti said that to keep the current account in surplus, large imports potentially could be staggered over a period to avoid sending the trade balance—a key component of the current account—into deficit.
"The government is in a position now to improve the fiscal position, and has the ability and capacity to do so in a gradual manner without disrupting the economy," she said.
The Philippine economy probably posted its slowest quarterly growth rate in nearly two years in April-June due to weaker exports, a Reuters poll showed, but growth on an annual basis likely stayed above 7% for a fourth straight quarter.
The Philippines was the fastest-growing economy in Asia in the first quarter, driven by robust consumption and government spending. But weaker global demand for its electronics exports and a slowdown in China could dampen its growth prospects.
Seven experts polled by Hina forecast the continuation of the contraction of Croatia's Gross Domestic Product (GDP) in the second quarter of 2013, which will be the seventh consecutive quarter with a negative growth. However, they also project deceleration in the decline of GDP.
The Central Bureau of Statistics is expected to publish a preliminary estimate of Q2 GDP, and the seven macro-economists polled by Hina already forecast the negative growth at the average of -1.5%. Their projections range between -0.8% to -1.4%.
The projections indicate a slower decline given that 2013 Q1 GDP fell by 1.5%.
Croatia's economy has been contracting since the start of 2009. It experienced two mild technical upturns in 2010 Q3 and in 2011 Q2, but major negative trends continued.
One of those polled experts told Hina that a positive turn of events in retail trade and stabilization in investment activities would have a positive impact on GDP.
Retail trade went up by 1.1% in May and by 2.7% in June year on year.
However, full recovery in this sector is not still in the offing, according to forecasts of the experts who cite a high jobless rate and low consumer optimism as hindrances to that process. In addition household deleveraging is going on.
The negative growth is seen as a consequence of weak industrial production which went down by 0.8% in H1.
The country's GDP is also likely to be affected by negative trends in gross fixed capital investments and in net experts.
Some Croatian macro-economists and domestic and international institutions have recently revised down Croatia's growth forecasts for 2013 amidst negative trends.
The seven experts polled by Hina envisage that Croatia will wrap up this year with a negative growth of 1%, as against their previous forecasts of -0.9%.
The International Monetary Fund estimates that Croatia's GDP will slide by 0.2% in 2013, while the World Bank put this figure at -0.4%.
The European Commission is more pessimistic, having revised down its estimate of Croatia's GDP in 2013 from -0.4%, as presented in February, to -1% in its latest projections.
Consulting firm Ernst & Young (E&Y) has downgraded its estimate of Czech GDP development and in its latest forecast expects an increase of 1.0% this year, while in March it had expected a decrease of 0.5%.
According to E&Y, a revival of the Czech economy can be expected next year, when GDP should rise by 2.2%.
Subsequently, GDP growth should accelerate up to 3.0% in 2016.
"Loosening of austerity measures will depend on further political development. Next year, the Czech economy should grow again mainly thanks to exports. For the years 2015 and 2016 we expect a growth of around 3.0%. The Czech economy could maintain this pace in the remaining years of this decade," partner Jan Fanta, a leading partner of corporate consulting and risk management of E&Y in CR, said.
The latest forecast of the Czech National Bank (CNB) expects Czech GDP to fall by 1.5% this year and to rise by 2.1% next year.
The Finance Ministry expects economic decrease of 1.5% for this year and a rise of 0.8% for next year.
Swedbank has retained Latvia's growth forecast at 4.3% in 2013. According to the economic forecast of Swedbank's macro-analysts, the Estonian economy will grow by 1.9% in 2013, while in the spring forecast, the bank expected a growth of 3.3%, informs LETA.
However, the bank's analysts have reduced Latvia's GDP forecast for next year from 5% growth to 4.7% growth. The reason for this will be a slower growth in exports, as economic growth in partner countries also becomes slower, writes Nozare.lv.
In 2015, Swedbank predicts Latvia will see 4.3% growth, the bank's chief economic expert Lija Strasuna said during a press conference. She points out that as companies await EU fund financing during the next budget period, investments will slow down a bit in 2015, thus GDP growth will be at around 4.3%.
According to Strasuna, growth at the moment remains quite good in Latvia and Lithuania, with Estonia seeing a slower growth rate this year at below 2.0%. However, it has been projected that Estonia will once again see growth close to 4.0% in the coming years.
The main impulse in the growth of the Latvian national economy is household consumption, which has been growing faster this year when compared to investments and exports. She points out that growth in exports and investments will be stronger next year, which will lead to an increase in GDP.
According to the economic forecast of Swedbank's macro-analysts, the Estonian economy will grow by 1.9% in 2013, while in the spring forecast, the bank expected a growth of 3.3%. The bank explained cutting the forecast with weaker domestic demand, especially fall of investments.
They expect the economic growth to improve in the second half of this year and together with stronger foreign demand, GDP growth should accelerate next year to 3.9% and in 2015, to 4.2%.
Swedbank expects Estonia' unemployment rate to be 8.9% this year.
Inflation is expected to slow down to 3.3% this year, 2.8% next year and accelerate to 2.9% in 2015.
Nigeria will be assisted by the World Bank, International Monetary Fund (IMF), Africa Development Bank, and other world development partners to produce a current and accurate GDP figure, the country’s Statistician-General, Dr. Yemi Kale has said.
The proposed GDP rebasing will help correct Nigeria’s fiscal planning and economic policies at the Federal, state and local government levels which have been consistently hinged on an obsolete Gross Domestic Product (GDP) baseline carried out since 1990.
Rebasing, which is the process of replacing the present price and quantity structure of the base year used to compile real measures of GDP with a new or more recent price structure, involves changing the price and quantity base for individual process and quantity relatives, updating weights used in aggregating individual quantity relatives into sub-indexes and aggregating these sub-indexes into more aggregated indexes.
Speaking at a one-day sensitization workshop on Nigeria’s GDP Rebasing, Dr Kale said the National Bureau of Statistics (NBS) planned to generate a base-year estimate which will help fill the gaps on data needed for future estimates.
According to Statistician-General, the proposed rebasing will help Africa’s second-largest economy plan and measure development better.
“We are trying to update the current farm price and quantity structures used in the calculation of our GDP estimates to come out with more up-to-date figures,” he explained.
Dr Kale, however, noted that the proposed rebasing of the country’s gross domestic product (GDP) is not a guaranty that the economy would expand.
IMF Senior Resident Representative, W. Scott Rogers, in his remark, pointed out that the outcome of the exercise could be difficult to determine as it could either reveal a contraction or expansion of the economy.
According to reports, Nigeria is poised to overtake South Africa as Africa’s largest economy after the exercise.
A tentative rebasing estimate would be provided in December.
Britain's recession-scarred economy expanded more rapidly than first thought in the second quarter of the year, by 0.7%, stoking hopes that recovery is finally taking hold.
In its second estimate of growth from April to June, the Office for National Statistics said GDP grew more strongly than its first estimate, of 0.6%. The 0.7% jump was the strongest since the third quarter of last year, when the economy was boosted by the Olympics.
The upturn is also more broad-based than first thought, according to the breakdown of the data, helping to assuage fears that the UK is in an unsustainable "Alice in Wongaland" recovery, too dependent on consumer spending.
Business investment was up 0.9%, the ONS said, while household spending expanded by 0.4%. Exports rose at 3.6%, the fastest pace since late 2011.
Chris Williamson, chief economist at data provider Markit, said: "Importantly, the upturn was not simply fueled by surging spending by households. Instead, exports and business investment were key drivers of the expansion, pointing to a rebalancing of the economy away from domestic consumption."
The Treasury, which is hoping a full-blown recovery is under way, after almost two years of weakness, seized on the widespread nature of recovery.
A spokeswoman said: "This data confirms that the British economy is moving from rescue to recovery, supported by balanced growth across the economy. It's particularly encouraging that growth in exports and investment contributed well over half of the second quarter growth rate. There is still a long way to go, but the economy is on the right track."
David Kern, of the British Chambers of Commerce, said: "Business investment is still too weak in spite of the modest rise, but the figures support our view that Britain's trading position is improving. Although the rebalancing towards net exports is taking some time, we have seen a significant narrowing of the trade deficit in the first half of this year."
Sterling was up 0.3% against the dollar, at $1.5638, and the FTSE 100 extended gains on the news, as investors welcomed the improving economic climate. However, signs of a stronger-than-expected recovery are also likely to frustrate the Bank of England's plans to persuade the markets that interest rates will remain on hold until 2016.
As it updated its data with more detailed information, the ONS confirmed that all four main sectors of the economy – agriculture, production, construction and services – expanded, for the first time since the third quarter of 2010.
Within services, which make up more than 75% of the economy, the strongest growth was in distribution, hotels and restaurants, where output was up 1.7%.
Construction output saw a healthy 1.4% rise, stronger than the initial estimate of 0.9%; while manufacturing – key to the government's hopes of "rebalancing" the economy – saw a 0.7% rise, compared to the earlier calculation of 0.4%. However, construction output is still 0.5% below the same period last year; and manufacturing production is about 10% below its peak before the financial crisis.
Some analysts still cautioned that, with fresh austerity measures due to bite over the next year, the upturn still looks too reliant on Britain's shoppers.
Melanie Bowler, an economist at Moody's, said that while she expected growth to continue for the rest of the year, question marks remained about the longer-term sustainability of the recovery.
"The risks are weighted to the downside for the remainder of 2013 and indeed for the next couple of years. In particular, dependence on private consumption as the key contributor to economic growth is a concern for the UK, where fiscal austerity is likely to hold down domestic activity for some time."
Chris Leslie, Labor's shadow financial secretary to the Treasury, said: "These figures confirm that after three wasted years of flat lining we finally have some welcome but long overdue growth. But for all George Osborne's complacent claims that the economy is now fixed, for ordinary people things are getting harder."
Workers' pay increased by 2.4% in the second quarter, the fastest pace since mid-2000 – but the ONS stressed that this partly resulted from unusually high bonus payments in April, as highly paid workers deferred payouts to benefit from Osborne's 5p cut in the top rate of tax.
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