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Sharp decrease in investment dynamics in Q2

Final GDP data in line with flash estimate

In accordance with GUS data published today, the GDP growth rate stood at 5.1% YoY in Q2 vs. 5.2% in Q1, running in line with the flash estimate released earlier. Seasonally-adjusted quarterly GDP increased by 1.0% QoQ vs. a 1.6% increase in Q1.

Consumption continues to be the main driver of economic growth

Q2 recorded a slight acceleration in consumption growth (up to 4.9% YoY vs. 4.8% in Q1), supported by further improvement in the labour market, including in particular faster increase in real wage fund (employment times average wage) in the corporate sector. However, due to the reduction of the weight of private consumption in GDP between Q1 and Q2, the contribution of consumption to GDP dropped to 2.9 pp in Q2 vs. 3.0 pp in Q1. Nonetheless households' consumption expenditure continued to be the main factor behind economic growth. As we expected, the contribution of inventories to GDP dynamics has sharply decreased from 1.9 pp in Q1 to 0.2 pp, largely due to the last year's high base effect. On the other hand, the contribution of net exports to GDP dynamics has significantly increased (from -1.2 pp up to 0.5 pp), due to the fact that exports accelerated faster than imports, which was also in line with our scenario.

Sharp decrease in investment dynamics in Q2

A big surprise are the data on investment dynamics which dropped to 4.5% YoY in Q2 vs. 8.1% YoY in Q1. The slower pace of fixed capital formation in Q2 is surprising in the light of the sharp acceleration recorded in this period in investment outlays of enterprises employing at least 50 persons (their share in total investments amounts to 37%) and slight acceleration in the growth of investments of local government units (see MACROmap of 27/8/2018). It results from the information provided by GUS that the reason for the strong deceleration in total investments in Q2 was the way in which military investments are treated in the national accounts (difference between accounting on accrual basis and cash basis) which boosted public investments dynamics in Q1 and was responsible for their decline in Q2. Based on the available data on corporate investment outlays, housing investments of households, and municipal investments, we estimate that public investments excluding local governments decreased by more than 20% in annual terms.

Slight upside risk to GDP growth in 2018

Despite the surprising decline in investment dynamics in Q2, we expect that in H2 their growth will accelerate boosted by fast increase in public investments excluding local governments and higher dynamics of investment outlays of small and medium-size enterprises. Faster investment growth will be accompanied by slight slowdown of consumption growth, caused mainly by slower growth of employment. However, the data on consumption in Q2 suggest that its growth in H2 is likely to be faster than we expected. Consequently, there is a slight upside risk to our forecast of economic growth both in H2 and in the whole 2018 (5.0%). We will present our revised medium-term macroeconomic scenario on 10th September.

Today's data on GDP are neutral for PLN and yields on Polish bonds.