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Decline in consumption slowed the GDP growth down in Q4 2022

Economic growth in 2022 above market expectations

In accordance with the GUS data published today, Poland's GDP increased by 4.9% in 2022 comparing to a 6.8% growth in 2021, running above the market expectations (4.8%) and our forecast (4.5%). GDP data reflects an economic activity slowdown connected with lower contributions from private and public consumption. At the same time, economic growth in 2022 was boosted by net exports and investments contributions, which were higher than in 2021.

Decline in consumption slowed the GDP growth down in Q4 2022

Based on GUS data, we estimated that real GDP growth rate stood at 2.3-2.4% YoY in Q4 2022 vs. 3.6% in Q3, which was better than we had expected (1.1%).

Annual economic growth between Q3 and Q4 was primarily driven down by a lower contribution of private consumption (-0.8 pp in Q4 vs. 0.5 pp in Q3). Consumption growth rate decreased from 0.9% YoY in Q3 2022 to approx. -1.5% in Q4. The decline in year-on-year private consumption was consistent with our expectations, and was seen for the first time since Q1 2021. Consumption was curbed by the decline in real wage fund growth amidst high inflation, poor consumer sentiment, increased uncertainty, and the fading effect of pent-up demand.

Annual GDP growth between Q3 and Q4 was also driven down by a lower contribution of inventories, which fell from 2.2 pp in Q3 to 1.6 pp in Q4. Nonetheless, just like the quarter before, increasing inventories continued to be the main GDP growth driver in Q4 in Poland. Such high contribution of inventories is intriguing given the business survey results (incl. PMIs) published over the last couple of months, which were showing that the enterprises were reducing their inventories of both finished products and production means.

Surprisingly good investment data

As regards the economic growth structure for Q4 2022, particularly noteworthy is a clear growth in investments, by 5.1-5.2% YoY comparing to a 2.0% growth in Q3 (we were expecting a 1.8% drop YoY). Enterprises’ investments in Q4 were curbed by the continuing uncertainty regarding economic conditions in the future, including potential energy supply disruptions, high interest rates, and growing costs of operation. Households’ investments (mainly purchases of apartments in the new property market) were in turn driven down by poorer availability of mortgage loans, poorer demand for apartments bought for cash, high prices of apartments, and high interest rates. Therefore, we believe that it was public investments that drove the gross fixed capital formation up in Q4 2022. Our conclusion is supported by construction-and-assembly production data for October-December 2022 (quicker growth in the “civil engineering works" category).

A slightly higher contribution of net exports, which we estimate to have stood at 0.8 pp in Q4 vs. 0.6 pp in Q3 was another factor curbing the slowdown in Q4 2022. A drop in private consumption, public consumption and inventories contribution drove the domestic demand growth down to 2.4% YoY vs. 3.6% in Q3. Therefore, we expect the imports growth to have slowed down strongly in Q4 2022 (the data on imports has not been published today). At the same time, exports growth was supported by lesser global supply chain disruptions.

Economic growth to slow down in 2023

Today’s GDP data supports our “soft landing” scenario for the Polish economy. In this scenario, GDP growth in Poland in 2023 will remain positive despite a significant slowdown. We believe that year-on-year consumption will begin to grow again in line with the inflation drop that we expect to take place. We believe that global economic upturn that we expect to take place will support the exports and the economic growth in Poland. Furthermore, in accordance with the results of the enterprises’ sentiment survey published today (“NBP’s Quick Monitoring”), the companies’ expectations concerning the outlook for investments until the end of 2023 have improved comparing to the previous report.

In our opinion, today’s publication of GDP data for 2022, which is better than the market expected, is slightly positive for the PLN and the yields on Polish bonds.