GDP growth in Q3 above expectations

GDP growth in Q3 above expectations

In accordance with the GUS flash estimate, GDP growth rate in Q3 rose to 4.7% YoY vs. 4.0% in Q2 and thus was slightly above our forecast consistent with the market consensus (4.5%). The higher-than-expected GDP dynamics in Q3 can be, to a certain extent, attributed to the review of the quarterly data released today by GUS on GDP between Q1 2016 and Q2 2017. Its consequence was an increase in GDP dynamics in Q1 and Q2 by 0.1 pp. The annual dynamics of seasonally adjusted GDP rose from 4.2% in Q2 to 5.0% YoY, hitting the highest level since Q3 2011. The quarterly dynamics of seasonally adjusted GDP rose to 1.1% YoY vs. 0.9% in Q2, which points to a slight acceleration in economic activity growth in Q3. The data published by GUS are a flash estimate. Full GDP data with information about its structure will be released on 30 November.

Investments accelerated, consumption slightly slowed down

We believe that the main factor behind the acceleration of growth in Q3 was higher contribution of net exports, resulting from a surprising slowdown in imports. The contribution of investments has also increased. In our view this increase resulted from both higher dynamics of public investments and faster growth rate of investments of private companies and households. The recovery in investments was mainly due to increased use of EU funds from the 2014-2020 programming period, which was reflected by a sharp increase in the construction-assembly production in Q3. In addition, corporate investments were supported by high capacity utilization in manufacturing. In our view, private consumption continued to grow fast in Q3, supported by further improvement in the labour market and faster growth of real corporate wage fund. The contribution of consumption to GDP growth was most likely similar to that recorded in Q3 while the contribution of inventories – sold off by companies with a view to satisfying the fast growing demand – was slightly negative (see MACROpulse of 2/11/2017).

GDP structure crucial for NBP interest rate prospects

Today's data on GDP are positive for PLN and bond yields. Full assessment of the impact of these data on the prospects for NBP interest rates will be possible once GUS has published the structure of GDP in Q3. We believe that these data would substantially increase the likelihood of interest rate hikes by the MPC in H1 2018 only in a situation of the recovery in investments being much stronger than assumed in the November NBP projection. In accordance with this projection, investment dynamics amounted to ca. 6% YoY in Q3 and were much higher from our expectations (3.7% YoY). Consequently, we do expect the investment growth in Q3 to be much faster than forecast in the NBP projection. We therefore maintain the scenario in which the NBP will hike interest rates (by 25bp) in November 2018. This scenario is supported by the downward trajectory expected by us for the dynamics of food prices starting from Q1 2018 (see MACROpulse of 13/11/2017). Also here the expected by us profile is markedly below the one forecast in the NBP projection.

Today's GDP data pose an upside risk to our forecast of economic growth in 2017 (4.1%). We will present our revised medium-term macroeconomic scenario at the beginning of December 2017 after seeing the GDP structure in Q3.