Stagnation in investments continues

GDP growth rate in Q2 in line with flash estimate

In accordance with the today's GUS reading, GDP growth rate in Q2 amounted to 3.9% YoY vs. 4.0% in Q1 and thus was in line with the previously published flash estimate. The quarterly dynamics of seasonally adjusted GDP have not changed in Q2 vs. Q1 and amounted to 1.1%.

The main factor positive for economic growth in Q2 was higher contribution of inventories (1.9 pp in Q2 vs. 0.7 pp in Q1). In our view, this shows that companies are increasing investment buffer in anticipation of further business climate improvement in H2 2017.

Deterioration in foreign trade balance has weakened GDP growth

The main factor reducing the GDP growth rate in Q2 was lower contribution of net exports (down to -1.5 pp in Q2 vs. 0.1 pp in Q1). It resulted from lower dynamics of imports (6.1% YoY in Q2 vs. 8.7% in Q1) and exports (2.8% YoY vs. 8.3%). In both cases the deceleration was related with the high base effects from the year before. We therefore believe that the decline in imports and exports growth is temporary. In subsequent quarters increase in exports will be supported by recovery in global trade, while higher import dynamics will result from an increase in domestic demand due to the expected by us rebound in domestic investments.

Improvement in the labour market supports increase in consumption

The dynamics of private consumption rose to 4.9% YoY in Q2 vs. 4.7% in Q1 2017. Its increase was supported by continuing improvement in the labour market, reflected by higher growth rate of the wage fund (see MACROpulse of 18/7/2017) and improving consumer sentiment. On the other hand, high base effects from the year before related to the launch of the Family 500+ scheme had an opposite impact. Despite an increase in private consumption dynamics, its contribution to GDP growth dropped to 2.9 pp in Q2 vs. 3.0 pp in Q1, following a decrease in the weight of consumption in the GDP between Q1 and Q2. Nonetheless, private consumption continued to be the main source of GDP growth.

Stagnation in investments continues

The annual dynamics of investments rose slightly to 0.8% YoY in Q2 vs. -0.4% in Q1. Their seasonally adjusted quarterly dynamics rose to 0.5% in Q2 vs. 0.3% in Q1, which points to a fourth consecutive quarter of stagnation. The contribution of investments to the annual GDP growth rose to 0.1 pp vs. 0.0 pp. In our view, the slight acceleration in investments growth was related to higher dynamics of public and households' investments. The recovery in public investments resulted mainly from higher absorption 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. On the other hand, higher dynamics of households' investments were associated with the recovery in residential construction. The growth rate of investments was most probably negatively impacted by their lower growth in the corporate sector. This view is supported by the last week's GUS data, in which investments of enterprises employing at least 50 persons decreased by 1.5% YoY in Q2 vs. a 1.2% increase in Q1 (see MACROmap of 28/8/2017). Noteworthy in the data structure is also a decrease in the investments rate for the last 4 quarters down to 17.7% vs. 17.8% in Q1, being the lowest level since Q2 1996.

The slowdown is only temporary

We believe that the slowdown of economic growth in Q2 was temporary and the GDP growth rate will increase in Q3, supported by higher contribution of investments which will more than offset the decrease in the contribution of private consumption.

Today's GDP data are neutral for PLN and debt prices. At the same time the continuing stagnation in investments supports our scenario assuming stable interest rates in Poland until November 2018. We will present an update of our forecasts for 2017-2018 on 11 September in the MACROmap.