GDP growth in Q3 slightly above expectations

Inflation above the GUS flash estimate

In accordance with the final GUS data, CPI inflation dropped to 3.1% YoY in October vs. 3.2% in September, running above the GUS flash estimate equal to our forecast (3.0%) and below the market consensus (3.2%). The main factor behind lower inflation in October were lower dynamics of the prices of food and non-alcoholic beverages (2.4% YoY in October vs. 2.8% in September). The lower growth rate of prices in this category resulted mainly from lower dynamics of the prices of meat and fruit, mainly due to last year’s strong high base effects. Lower inflation resulted also from lower core inflation which according to our estimates dropped to 4.2% YoY in October vs. 4.3% in September. The decrease in core inflation resulted from lower price dynamics in the categories “communication”, “clothing and footwear”, “recreation and culture”, “restaurants and hotels”, and “household equipment and routine household maintenance”. A slight increase in the dynamics of energy prices (4.8% YoY in October vs. 4.6% in September), resulting from higher dynamics of the prices of gas, heating fuels and heat, had opposite impact. The dynamics of fuel prices have not changed in October compared to September and amounted to -9.2% YoY.

Core inflation has resumed a downward trend

Especially noteworthy in the data structure is the decrease recorded in core inflation in October after it matched in September its level of July when it was the the highest since December 2001. Although the positive impact of the pandemic on the price growth rate can still be seen in some categories (higher monthly price dynamics was recorded i.a. in the categories “personal hygiene articles and cosmetics” and “dental services” - see MACROpulse of 15/10/2020), the last year’s high base effects observed in several categories making up core inflation were strong enough to more than compensate the impact of these rises. This is in line with our scenario assuming further decrease in core inflation in the coming months.

Subsequent months will bring a decrease in inflation

We forecast that inflation will decrease to 2.7% YoY in Q4 vs. 3.0% in Q3 and in the whole 2020 it will amount to 3.4% vs. 2.3% in 2019. Conducive to lower inflation will be the forecasted by us decrease in core inflation and food price dynamics while higher dynamics of fuel and energy prices will have opposite impact (see MACROmap of 26/10/2020).

GDP growth in Q3 slightly above expectations

In accordance with the GUS flash estimate, GDP growth rate rose to -1.6% YoY in Q3 vs. -8.4% in Q2, running above the market consensus (-1.8%) and below our forecast (-1.0%). Seasonally-adjusted GDP dynamics rose to 7.7% QoQ in Q3 vs. -9.0% in Q2. The data published by GUS are a flash estimate and full GDP data including information about its structure will be released towards the end of the month. We believe that the marked increase in GDP dynamics in Q3 vs. Q2 was mainly the effect of a surge in the contribution of consumption and net exports. Today’s data pose a slight downside risk to our forecast, in which in the whole 2020 GDP in Poland will decrease by 3.1% vs. a 4.5% increase in 2019.

The flash estimate of GDP and final data on inflation that have been released today are neutral for PLN and yields on Polish bonds.