Surprising slowdown of investments growth in Q4 2018

Economic growth in 2018 above expectations

In accordance with flash GUS data published today, GDP in Poland rose by 5.1% in 2018 vs. 4.8% in 2017, running slightly above our forecast equal to the market expectations (5.0%). Thus, GDP dynamics in 2018 stood at the highest level since 2007. Conducive to higher economic growth rate last year was mainly the acceleration in investments growth from 3.9% in 2017 to 7.3%. Slower growth of private consumption (from 4.9% in 2017 down to 4.5%) had an opposite impact. The contributions of increase in inventories (0.5 pp), net exports (0.0 pp), and public consumption (0.7 pp) to GDP growth in 2018 have not changed substantially compared to 2017.

Surprising slowdown of investments growth in Q4 2018

Based on GUS data, we have estimated that real GDP growth rate stood at 4.9% YoY in Q4 2018 vs. 5.1% in Q3, which was clearly a faster pace from our expectations (4.5%). However, the structure of GDP growth in Q4 can be said to be disappointing. Firstly, the consumption growth has visibly slowed down (to 3.9% vs. 4.5% in Q3), which is surprising in the light of data on wage fund growth (see MACROpulse of 18/1/2019) and retail sales (see MACROpulse of 22/1/2019) in Q4 2018. Thus, the slowdown of consumption growth took place sooner than we had expected which can be attributed to higher households' propensity to saving. Secondly, Q4 2018 recorded a visible decrease in investment dynamics to 6.8% YoY vs. 9.9% in Q3 (we expected an increase by 9.3% YoY). This suggests at the most a slight acceleration in corporate investment growth that has been offset by sharp slowdown of public investment growth. In our view, the data on investments in Q4 confirm that the peak in public investments is already behind us and the recovery in corporate investments is moderate. Thirdly, Q4 2018 saw a sharp increase in the contribution of net exports to GDP growth (from -0.9 pp in Q3 to 0.8 pp) which signals significant deceleration in imports due to lower consumption and investments growth.

Economic growth to visibly slow down

The implied data on GDP in Q4 do not alter our medium-term macroeconomic scenario. Although the data on economic activity in Q4 point to a higher starting point for the forecast of GDP growth in 2019, the data released in January on business climate in Poland's major trading partners (see MACROmap of 28/1/2019) indicate high likelihood of a deeper than we expected slowdown of economic growth in 2019 in the Eurozone and Germany. Consequently, the contribution of net exports to GDP growth can be expected to significantly decrease. We maintain our scenario in which GDP dynamics in 2019 will amount to 3.3% vs. 5.1% in 2018.

The publication of today's better-than-expected data on GDP in 2018 is neutral for PLN and bond yields.