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Deceleration in exports, consumption and GDP growth

Marked deceleration of economic growth in Q4

In accordance with GUS data published today, real GDP growth rate stood at 3.2% YoY in Q4 2019 vs. 3.9% in Q3, running above the flash estimate released by GUS on 14 February 2019 (3.1%). The QoQ economic growth rate dropped from 1.2% in Q3 to 0.2% in Q4, hitting the lowest level since Q3 2016. The structure of GDP growth was only partly consistent with our estimates that were based on the preliminary annual data on GDP (see MACROpulse of 29/1/2020). The biggest changes compared to the implied structure of GDP growth in Q4 occurred in the contribution of net exports (positive) and in the contribution of the change of investments (negative).

The swan song of investments?

Q4 2019 saw a slight increase in investment dynamics to 4.9% YoY vs. 4.7% in Q3. Considering the numerous signals pointing to the slowdown of public investments growth (the recorded between October and December 2019 marked decrease in construction-assembly production dynamics in the categories “railway” and “roads”, decrease in the dynamics of added value in construction to 1.6% YoY in Q4 2019 vs. a 3.6% increase in Q3, as well as deepening decline in the nominal dynamics of investment outlays of local governments from -8.9% YoY in Q3 down to -11.8% in Q4), public investments cannot be expected to be responsible for the recovery in gross fixed capital formation. It therefore suggests an intensified investment activity of enterprises in the modernization of existing fixed assets or increasing of production capacity. However, we believe that the increase recorded in Q4 in total investments growth was temporary. This view is supported by the results of business surveys (NBP Quick Monitoring, January 2020), indicating a significant deterioration of forecasts concerning the financial standing and investment plans of companies, and the results of NBP survey among credit committees of banks pointing to a marked decrease in the expected demand for long-term (investment) credit for large companies.

Growing propensity to save limits consumption growth

Consumption growth slowed down to 3.3% in Q4 vs. 3.9% in Q3, consistently with the sharp decrease in real wage fund dynamics recorded in Q4 in the whole economy. In our view, the slower consumption growth in Q4 resulted also from households’ higher propensity to save. According to our estimates, the household savings rate amounted to 3.1% in Q3 2019 (the highest since Q1 2016) and is likely to increase further in Q4, supported by a visible deterioration of consumer sentiment. In subsequent quarters of 2020 we expect further slowdown of consumption growth due to continuing increase in households’ propensity to save, inflation visibly higher from 2019, launch of Employee Capital Plans (conducive to a decrease in the disposable income of households), slight decline in employment (the effect of sharp increase in minimum wage and weaker demand), and weakening of the favourable impact of social transfer payments.

Surprisingly deep slowdown of export and import growth

Q4 2019 saw an increase in the contribution of net exports to GDP dynamics from 0.8 pp in Q3 to 1.1 pp (the highest since Q1 2016), due to a stronger deceleration in imports (from 3.9% YoY in Q3 down to -0.7% YoY) than in exports (from 5.0% YoY down to 1.4%). Thus, the annual dynamics of exports and imports volumes in Q4 were the lowest since Q3 2009 and Q2 2013, respectively. The sharp slowdown of export dynamics is a big surprise as the earlier published data on foreign trade in Q4 did not signal such a deep slowdown of its growth. A fuller assessment of the sustainability of these trends will be possible after the publication of data on foreign trade in January 2020.

Economic growth to visibly slow down in 2020

Today’s data do not alter our macroeconomic scenario, in which subsequent quarters of 2020 will see further slowdown of consumption, investments and GDP growth amid low economic growth in Poland’s main trading partners. We maintain the forecast that GDP will increase by 2.7% in 2020. We believe that the main risks to our forecast (better-than-expected data on production in January 2020 and the negative impact of the coronavirus outbreak on Polish exports and industrial production in Poland) cancel each other. In the case of further fast spread of coronavirus epidemic in Europe, further slowdown of GDP growth is possible. In the next MACROmap we will present a pessimistic scenario of the impact of the coronavirus epidemic on the Polish economy, showing the major channels via which this impact may be exerted.

In our view, today's publication of data on GDP is neutral for PLN and yields on Polish bonds.