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Investments supported economic growth

GDP growth in Q2 slightly above expectations

In accordance with the final GUS data, CPI inflation in July has increased to 1.7% YoY vs. 1.5% in June, running in line with the flash estimate by GUS and above our forecast, which was equal to the market consensus (1.6%).

Wide ranging recovery in investments supported GDP growth in Q2

We believe that the main factor behind the acceleration of growth in Q2 was higher contribution of investments. In our view it resulted from both higher dynamics of public investments and investments of companies controlled by the public sector as well as 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 in recent months by a sharp increase in the construction-assembly production, in "civil engineering” in particular. With regards to households' investments, their higher dynamics were associated with the recovery in residential construction. In addition, the recovery in corporate investments was supported by high capacity utilization in manufacturing.

The gradual abatement of 500+ effect was negative for private consumption growth

In our view, the main factor reducing the GDP growth rate in Q2 was lower contribution of private consumption. It mainly resulted from the gradual abatement of the positive impact of the 500+ scheme on its dynamics. However, this negative effect was limited by the ongoing recovery in the labour market, reflected by higher growth rate of the wage fund (see MACROpulse of 18/7/2017).

Recovery in investments increased demand for imported goods

In our view, conducive to slower economic growth in Q2 was also a lower contribution of net exports, as the recovery in investments contributed to a significant acceleration in imports growth and – consequently – lower contribution of net exports to growth. In effect, we believe that the contribution of net exports stood slightly below zero in Q2. We believe that the continuation of the recovery in investments in subsequent quarters will be conducive to its further decline.

The slowdown is only temporary

We believe that the slowdown of economic growth in Q2 is temporary and GDP growth, supported by higher contribution of investments, will run at 4.1% YoY in Q3.

Today's GDP data are neutral for PLN and debt prices and do not alter our scenario of the MPC monetary policy outlook (the cycle of interest rate hikes to start in November 2018).