GDP data on the eve of recession

Final DGP data above flash estimate

In accordance with GUS data published today, GDP growth rate amounted to 2.0% YoY in Q1 vs. 3.2% in Q4 2019, running above the flash estimate released earlier (1.9%). The seasonally adjusted GDP decreased by 0.4% QoQ in Q1 vs. a 0.2% increase in Q4.

Private consumption and investments slowed down

Private consumption growth dropped to 1.2% YoY in Q1 vs. 3.3% in Q4, due to a slowdown in the real wage fund (employment times wages), following a sharp increase in Inflation. In addition, consumption was limited by the closing of shopping malls in the second half of March due to the COVID-19 epidemic (see MACROpulse of 22/4/2020).

The slowdown in economic growth resulted also from investments whose dynamics dropped to 0.9% YoY vs. 6.1% in Q4. The growth rate of investments of companies employing at least 50 people decreased only slightly between Q4 and Q1 (from 5.6% YoY to 5.2%). Based on the data on construction-assembly production for the January-March period, public investments dynamics can be expected to have increased in Q1 (sharp increase in expenditures on road and railway construction). This suggests that the slowdown in total investments results from lower outlays of small companies.

COVID-19 limited international trade

Broken supply chains due to the COVID-19 pandemic were conducive to slower export growth (down to 0.6% YoY in Q1 vs. 2.0% in Q4). Weaker domestic demand and supply-side constraints at trade partners contributed to a decrease in imports by 0.2% YoY in Q1. Due to the abatement of the high base effect, their dynamics increased from -2.0% YoY in Q4. As a result, the contribution of net exports decreased to 0.4 pp in Q1 vs. 2.0 pp in Q4.

Growth driven by inventories

The main factor boosting GDP growth in Q1 was a higher contribution of inventories (0.0 pp vs. -2.5 pp). It mainly resulted from the visible decrease (by PLN 1.4bn) in inventories in Q4 2020, whereas the increase in inventories in Q1 has not been significant against the background of historic tendencies (PLN 6.3bn).

GDP data on the eve of recession

The structure of GDP growth that was published today reflects a different reality from the one we are dealing with now, i.e. before the outbreak of the coronavirus epidemic. Thus, the tendencies they show are of a limited predictive importance for subsequent quarters. However, April data on retail sales, industrial production and construction-assembly production signal a downside risk to our forecast of economic growth in Q2 (-8.9% YoY) and in whole 2020 (-3.8%). On 8 June we will present our updated medium-term macroeconomic scenario, taking into account the information incoming in recent weeks.

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