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GDP growth, investments and consumption are slowing down

Final GDP data in line with flash estimate

In accordance with the GUS data published today, GDP growth rate amounted to 3.9% YoY in Q3 vs. 4.6% in Q2, running in line with the flash estimate published earlier. Seasonally-adjusted GDP increased by 1.3% QoQ in Q3 vs. a 0.8% increase in Q2.

Surprise in investments...

The main factor behind slower economic growth was a decrease in investments (from 9.1% YoY in Q2 down to 4.7% in Q3), which lowered the annual GDP dynamics between Q2 and Q3 by 0.7 pp. Such sharp decrease in investment outlays growth rate in Q3 is a big surprise (our forecast amounted to 8.1% YoY). In our view, the decrease in investment dynamics was wide ranging. It resulted from both slower growth of corporate outlays (in companies employing at least 50 persons, the nominal growth rate of investments dropped from 17.2% YoY in Q2 to 13.6% in Q3) and public investments (see MACROmap of 21/11/2019). We believe that the main reason for the slower-from-our-expectations investment growth were lower dynamics of public investments. The downward trend in the dynamics of public investment outlays is related to the EU funds spending cycle, high base effect for investments of local governments, and delays in the implementation of road and railway projects. However, the structure of the construction-assembly production growth in Q3 was not pointing to such a strong decrease in public investments, which largely explains the error of our forecast.

... and in consumption

Conducive to lower economic growth rate was also private consumption. Its dynamics in annual terms dropped to 3.9% in Q3 vs. 4.4% in Q2. Thus, the consumption dynamics stood at a level clearly below our expectations (4.6%) and slowed down despite the strong labour market (in Q3 the real non-farm wage fund increased by 5.2% YoY vs.4.7% in Q2), record optimism of households, and increase in their income due to the payment of social transfers under the extended 500+ scheme. Nevertheless, Q3 was the second quarter in a row in which consumption growth rate stood visibly below our expectations. This may be a sign of households’ increased propensity to save which weakens the impact of significant increase in social transfers on consumption.

The contribution of inventories continues to be negative

The factor limiting GDP growth in Q2 was a lower contribution of change in inventories (-0.7 pp vs. -0.2 pp in Q2). Thus, Q3 was a fourth consecutive month in which the contribution of inventories to economic growth was negative. Such situation has happened for the first time since 2013. In our view, the continuing negative contribution of inventories results from the deterioration in manufacturing in Germany at a scale which enforced slower increase in inventories in recent quarters. Considering low likelihood of a substantial improvement in global trade and German manufacturing in the coming quarters, the contribution of the increase in inventories to GDP dynamics in Poland in Q4 2019 and H1 2020 is likely to remain low.

As we expected, despite the slowdown of economic growth in Poland’s major trade partners, Q3 saw acceleration in export growth up to 5.0% YoY vs. 3.2% in Q2. Import dynamics have also increased (from 3.1% YoY to 3.9%) though the scale of this increase was smaller than for exports, contributing to a visible increase in the contribution of net exports to GDP dynamics (from 0.2 pp to 0.8 pp in Q3).

Significant downside risk to economic growth forecasts for 2019-2020

Today’s GDP Q3 reading signals a significant downside risk to our forecasts of GDP growth in 2019 (4.4%) and 2020 (3.5%). This risk results mainly from lower-than-expected dynamics of investments and consumption. We will present our latest macroeconomic scenario for the Polish economy in the next MACROmap on 9/12/2019.

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