Have we entered technical recession?

GDP data markedly below market expectations

In line with a flash estimate of the Polish Central Statistical Office (GUS), the GDP dropped to 5.3% YoY in Q2 vs. 8.5% YoY in Q1, running slightly below our forecast (5.4%) and significantly below market consensus (6.0%). The data published by the GUS is a flash estimate and the full data including information on its structure will be published at the end of the month. We believe that the main reason behind the decrease in GDP growth in Q2 compared to Q1 was the lower contribution of change in stocks (in Q1 it reached a historical peak of 7.7 pp). A factor conducive to the lower GDP growth was also, in our view, slower growth of investment associated with increased uncertainty and rising interest rates. We believe that consumption growth also slowed between Q1 and Q2 due to deterioration in household sentiment and a decline in real wages. In our view, however, the magnitude of the slowdown in private consumption growth during this period was only slight.

Have we entered technical recession?

Seasonally-adjusted quarterly GDP dynamics dropped from +2.5% in Q1 to -2.3% in Q2. We expect quarterly GDP growth in Q3 to also be below zero. This would mean that we entered the so-called technical recession (i.e. a decline in seasonally-adjusted GDP that lasts at least two consecutive quarters) in Q2. However, we believe that this technical recession will end in Q3. As a result, our scenario of a ‘soft landing’ of the Polish economy should materialize, despite the strong economic and geopolitical disturbances related to the war in Ukraine (see MACROmap of 04/07/2022).

The main risk factor for the scenario presented above is a possible ‘gas shock’, which could lead to a deep recession in Germany, and consequently also a strong decline in activity in Poland in late 2022 and early 2023 (see MACROmap of 11/7/2022). If such a scenario materializes, the technical recession in Q2-Q3 2022 would be extended to the end of Q1 2023, and its depth would be greater.

Today’s Q2 data on the GDP has no impact on our economic growth scenario for 2022 (3.4%). At the same time, this data is slightly negative for the PLN and yields on Polish bonds.