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Lockdown in Q4 as painful for the services sector as in spring

Economic growth rate in 2020 slightly below market expectations

In accordance with GUS data published today, in 2020, GDP in Poland fell by 2.8% compared to a 4.5% growth in 2019, running below our forecast (-2.5% following the publication of data for December) and market expectations (-2.6%). Data on economic activity reflect a strong negative impact of the COVID-19 pandemic. Conducive to a slower GDP growth rate last year was mainly a lower contribution of the domestic demand. It resulted from a decline in consumption (by 3.0% YoY vs. +4.0% in 2019) and investments (by -8.4% vs. +7.2% in 2019). The contribution of net exports also fell by 0.3 pts in 2020 comparing to 2019. The only factor boosting the economic growth was a higher contribution of inventories (-0.8 pp. in 2020 vs. -1.3 pp. in 2019).

Growth structure in Q4 2020 in line with expectations

Based on GUS data, we have estimated that real GDP growth rate stood at -3.0% YoY in Q4 2020 vs. -1.5% in Q3, which was a lower dynamics than we expected (-1.8% following the publication of December data). The GDP growth structure in Q4 is, however, not surprising.

Q4 2020 saw a marked decrease in investments by 10.6-10.8% YoY vs. -9.0% in Q3 (we expected a decrease by 10.5% YoY). Continuing uncertainty connected with the course of the pandemic constrained the companies’ investments. On the other hand, gross fixed capital formatuon were supported by the activity in the housing market and public investments. Our scenario is supported by data on construction-assembly production in Oct-Dec 2020 (particularly the growth rate in “railways and roads” and “residential buildings” categories) and the value added in the construction sector (a drop by 5.4% YoY in Q4 2020 vs. -9.2% in Q3).

Q4 2020 saw a strong decline in the contribution of net exports towards the GDP growth (-0.5 pp. vs. +1.7 pp. in Q3), which in our opinion resulted from a recovery in imports supported by last year’s low base effects. We believe that the annual exports growth rate in Q4 was similar to Q3 levels, and was supported by a global trade recovery. It is somewhat surprising, though, that the consumption decline in Q4 was smaller than we had expected (-3.0% YoY vs. +0.4% in Q3). However, very good labour market data for December suggested that there might be such a risk.

Higher contribution of inventories in Q4 2020 vs. Q3 2020 (+3 pp.) was an important factor boosting the economic growth. Last year’s low base effects and companies replenishing their inventories contributed to this result, which was in line with our expectations. This scenario is supported by the results of the PMI survey.

Lockdown in Q4 as painful for the services sector as in spring

Based on data published today, we assess that the value added in the services sector expressed in annual terms shrank by approx. 6% in Q4, which is similar to the pace of decline noted in Q2. This means that the government restrictions aimed at curbing the spread of the pandemic had a similar negative impact on the activity in the services sector as the restrictions adopted in the second quarter. The restrictions were less severe than in spring, but their impact was similar given that they were in force for a longer period of time. It is an important conclusion because it suggests that the activity in this sector will also be limited in early 2021, which in turn will hamper the economic recovery in Q1. This scenario is consistent with our GDP forecast of -1.0% YoY for the first quarter.

Slight economic recovery in 2021

Q4 data on economic activity does not change our economic growth scenario for 2021 (+3.6%). At the same time, we can see an upward risk for this forecast, which is connected with the global trade recovery seen at present, which will support Polish exports. It will be possible to analyse this risk in more detail when final GDP data for Q4 2020 is published in February.

In our opinion, today’s publication of GDP data for 2020, which is slightly worse than the market expected, is neutral for the PLN and the yields of Polish bonds.