Deeper slump in investments neutralized the positive impact of consumption in Q3

GDP growth in Q3 in line with flash estimate

In accordance with the today's GUS reading, GDP growth rate in Q3 2016 amounted to 2.5% YoY vs. 3.1% in Q2 and thus was in line with the flash estimate released earlier. Seasonally adjusted GDP rose by 0.2% QoQ in Q3 vs. a 0.8% increase in Q2. Regarding annual dynamics, seasonally adjusted GDP growth in Q3 amounted to 2.2% YoY vs. 3.1% in Q2. GUS also published revised GDP growth rates in respective quarters of 2015 and H1 2016, resulting from the October revision of the annual national account statistics. However, their impact on GDP structure in 2016 was not significant.

Deeper slump in investments neutralized the positive impact of consumption

Especially noteworthy in the structure of GDP growth in Q3 is a stronger decrease in investments, which dropped by 7.7% YoY in Q3 vs. a 5.0% decline in Q2. In our view, the decrease in investments dynamics was mainly due to the stronger decline in investment outlays in medium and large companies. According to GUS data, investments of companies employing at least 50 people dropped in nominal terms by 10.5% YoY in Q3 vs. a 3.4% decline in Q2, which, in our view, was mainly due to lower investment activity in state-controlled companies (see MACROmap of 28/11/2016 and 31/10/2016). The dynamics of public investments continued to be heavily negative in Q3 (in nominal terms they decreased by 11.0% YoY in Q2 vs. a 0.8% increase in Q1); however, data on investments of local government units (a markedly lower rate of decline in investment in Q3) show that the pace of public investments decline in Q3 most likely lowered. The stronger decrease in total investments has contributed to a decline in the annual GDP growth by 0.5 pp.

As we expected, the data on GDP in Q3 confirmed a significant impact of disbursements under the 500+ scheme on consumption. The increase in private consumption accelerated to 3.9% YoY in Q3 from 3.3% in Q2, contributing to an increase in GDP growth by 0.4 pp. Seasonally adjusted private consumption rose by 1.4% QoQ in Q3, which has been the highest growth since Q2 2008. Data on consumption in Q3, together with the slight decline in the dynamics of real wage fund (employment times average wage) recorded in that period in the economy, indicate that the trend towards increase in the household saving rate observed since 2014 has been stopped.

Net exports as main slowing down factor

As we expected, the main factor conducive to slower GDP growth in Q3 was a decline in the contribution of net exports to GDP dynamics from 1.0 pp down to -0.3 pp. It resulted from a clearly stronger decline in the exports dynamics (from 11.4% YoY in Q2 down to 6.8%) than imports dynamics (from 10.0% down to 7.8%). In our view, the slowdown in Polish exports in Q3 was mainly due to the change in the structure of economic growth, observed in recent quarters in the Eurozone (sharp decline in the contribution of exports to growth), conducive to lower demand for goods manufactured in Poland and used in the production of final products. On the other hand, GDP growth was strongly boosted by a positive contribution of increase in inventories (1.1 pp), recorded for fifth time in a row.

How long will the slowdown last?

Today's data on GDP in Q3, pose a significant downside risk to our forecast of economic growth in the whole 2016 (2.9%). Combined with the Q4 data released so far, the GDP data signal that GDP dynamics will amount to ca. 2.0% YoY in Q4 and in H1 2017 will stay at a level significantly below 3%. We expect GDP growth to sharply accelerate in H2 2017, boosted by a recovery in public investments and investment outlays in enterprises. On 12 December we will present our updated forecasts for 2016-2017. Today's data on GDP are neutral for PLN and yields on bonds.