Largest contribution of private consumption to GDP growth since 2008

GDP growth rate in Q1 in line with flash estimate

In accordance with the today's GUS reading, GDP growth rate in Q1 amounted to 4.0% YoY vs. 2.5% in Q4 2016 and thus was in line with the previously published flash estimate. Seasonally adjusted GDP increased by 1.1% QoQ in Q1 vs. a 1.7% increase in Q4.

Investments responsible for higher economic growth

The structure of GDP in Q1 was largely in line with our expectations. The main factor behind the significant acceleration of growth was a sharp increase in investment dynamics to -0.4% YoY vs. -9.8% YoY in Q4 (this factor was responsible for 2.8 pp of GDP growth rate increase). Significant acceleration in investment expenditure in Q1 was supported by public investments and investments of companies controlled by the public sector, implemented with the use of EU funds. Higher growth of fixed capital formation in these segments was boosted by low base effects from the year before (in nominal terms, they decreased by more than 30% YoY in Q1 2016). In addition, according to GUS data, investments of companies employing at least 50 persons increased in nominal terms by 1.2% YoY in Q1 vs. a 19.2% decrease in Q4. Judging by the data on the construction-assembly production between January and March, the dynamics of households' investments can be expected to have increased in Q1. Thus, all the three components of investments most probably recorded a higher growth rate in Q1 than in Q4 2016.

Unexpected acceleration of private consumption

Somewhat surprising is further acceleration of private consumption growth (from 4.5% YoY in Q4 up to 4.7%). We were expecting the private consumption growth to slow down due to a sharp increase in inflation (from 0.2% YoY in Q4 up to 2.0% in Q1) which limits the purchasing power of consumers. Data on consumption in Q1, together with a decrease recorded in this period in dynamics of real wage fund (employment time average wage) in the economy, indicate that the downward trend observed since Q2 2016 in household saving rate is continuing. Consequently, the contribution of consumption to GDP growth in Q1 (3.0 pp vs. 2.2 pp in Q4) stood at the highest level since Q4 2008.

Inventories and net exports limited the scale of recovery

The deceleration of GDP growth rate in Q1 was mostly due to lower contribution of inventories (from 2.3 pp in Q4 down to 0.7 pp). As we expected, conducive to slower GDP growth in Q1 was also lower contribution of net exports to GDP growth (from 0.8 pp down to 0.1 pp), resulting from a decrease in the dynamics of exports (from 9.3% YoY in Q4 down to 8.3%) with a simultaneous increase in the dynamics of imports (from 8.2% up to 8.7%).

Sound first quarter promises a good year

Today's data confirm our scenario in which the slowdown of economic growth ended in Q4. We expect that GDP growth rate will run at a level close to 4.0% YoY in subsequent quarters of 2017. The main factor behind GDP growth will be public and corporate investments implemented with the use of EU funds. The rebound in investments will contribute to a significant acceleration in imports growth and – consequently – to decreased contribution of net exports to growth. This decrease will take place despite a significant acceleration in exports caused by the expected by us recovery in global trade. We will present an update of our forecasts for 2017-2018 on 12 June.

Today's GDP data are neutral for PLN and debt prices.