COVID-19 pandemic hampered investments and consumption

Final data on GDP in line with the flash estimate

In accordance with the GUS data published today, GDP growth rate stood at -8.2% YoY in Q1 vs. +1.8% in Q1, running in line with the flash estimate that was released earlier. Seasonally-adjusted GDP dropped by 8.9% QoQ in Q2 vs. a 0.4% decrease in Q1. Thus, Poland has for the first time, at least since 2002 (namely within the available quarterly GDP data), recorded so-called technical recession (two consecutive quarters of GDP decline in QoQ terms)

Marked decline in domestic demand

The main factor behind lower GDP was a marked decline in the domestic demand following the COVID-19 epidemic. Domestic demand decreased by 9.5% YoY in Q2 vs. a 1.7% increase in Q1, mainly due to a decrease in private consumption and investments (by 10.9% YoY in both cases).

The decrease in consumption resulted mainly from the deterioration in the labour market and the restrictions imposed by governments to contain the spread of the COVID-19 epidemic. The scale of the negative impact of the government restrictions on the economic activity is well illustrated by a significant decrease in added value in the category “accommodation and catering” (down by 78.4% YoY in Q2 vs. a 0.9% increase in Q1).

In turn, gross fixed capital formation was most likely limited mainly by lower corporate investments. The uncertainty as to the further course of the epidemic has contributed to a marked deterioration of the investment climate. This view is supported by the decrease in the nominal dynamics of investments in companies employing at least 50 people from +5.2% YoY in Q1 down to -13.6% in Q2. Based on the data on the construction-assembly production for the April-June period, we can expect that the dynamics of public investments have not changed significantly between Q1 and Q2.

The marked weakening of demand has also contributed to a lower contribution of inventories to GDP growth (-1.7 pp in Q2 vs. 0.0 pp in Q1). The business surveys for manufacturing companies were pointing to a marked decrease in the inventories of semi-products and components in Q2.

Net exports providing support for economic growth

Weaker domestic demand and supply-side constraints at trade partners have contributed to a decrease in imports by 17.5% YoY in Q2 vs. a 0.2% decrease in Q1. At the same time, exports decreased to a smaller extent (by 14.3% YoY in Q2 vs. a 0.6% increase in Q1), mainly due to the visible recovery that was recorded in June. Consequently, the contribution of net exports rose to 0.8 pp in Q2 vs. 0.4 pp in Q1, being the only factor conducive to an increase in GDP dynamics between Q1 and Q2.

Upside risk to the GDP forecast

The GDP growth rate and its components stood above our forecasts in Q2. Coupled with the better-than-expected July data on retail sales and industrial production, today’s data signal a slight upside risk to our forecast of GDP growth in 2020 (-3.8%). The main source of uncertainty remains the profile of investments in subsequent quarters. Our updated medium-term macroeconomic scenario including the information coming in recent weeks will be presented in the next MACROmap.

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