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Net exports save the economic growth

Solid QoQ GDP growth rebound

In accordance with the final estimate published by the GUS, GDP growth slowed down from 2.3% YoY in Q4 2022 to -0.3% YoY in Q1 2023, running slightly below the flash estimate figure (-0.2%), but above the market consensus (-0.8%) and our forecast (-0.5%).

Seasonally-adjusted quarterly GDP growth accelerated to 3.8% QoQ in Q1 2023 comparing to a 2.3% drop in Q4 2022, which indicates that the GDP growth was strong and the Polish economy has avoided the so-called technical recession understood as the seasonally-adjusted GDP declining for at least two consecutive quarters. The strong rebound in activity that was seen in that period was primarily attributable to the increase in the added value in market services, first of all in such categories as “transport and warehousing management”, “trade and repair of motor vehicles” and “real estate market services”.

Changes concerning inventories as the main factor hampering growth

The main source of the reduction in year-on-year economic growth between Q4 and Q1 (by 5.8 pp) was a significantly lower contribution of inventories, which shrank from 1.7 pp in Q4 to -4.1 pp in Q1. Amidst the current, global slowdown of economic activity, an increasing number of enterprises reported problems with excessive inventories accumulated during the pandemic period and after the beginning of the Russian invasion of Ukraine, and took decisions to reduce their numbers. The trend was supported by the clearing of supply bottlenecks. Furthermore, with the number of orders dropping, the enterprises were increasingly making use of their finished product inventories to carry out the received orders while limiting the ongoing production at the same time. Today’s data is consistent with our scenario (see MACROmap of 15/05/2023), in which the increase in inventories observed over the last couple of quarters is ceasing to drive the GDP growth.

Investment growth comes as a positive surprise

Investment growth rate increased from 5.4% YoY in Q4 2022 to 5.5% in Q1 2023, markedly above our expectations (2.0%) This positive surprise was most likely possible due to the investment activity of enterprises, which, albeit lower, did not slow down as much as we had previously expected. In accordance with the GUS data published last week, gross fixed capital formation growth in enterprises having at least 50 employees slowed down only slightly (7.2% YoY in Q1 2023 vs. 7.6% in Q4 2022). Although total investment growth accelerated between Q4 2022 and Q1 2023, its weight in GDP became smaller, which drove its contribution towards GDP down by 0.6 pp.

GDP growth in Q1 2023 vs. Q4 2022 was also driven down by the contribution of consumption growth, which went down by 0.5 pp. The decline in consumption expressed in annual terms grew stronger (from -1.1% YoY in Q4 2022 to -2.0% in Q1 2023). It came as a result of last year’s high base effect connected with the increase in households’ expenses caused by the inflow of refugees from Ukraine, and was reflected in a significant year-on-year retail sales drop seen in Q1 2023. However, consumption decline was slowed down by households’ high demand for services.

Net exports save the economic growth

A higher contribution of net exports (4.3 pp in Q1 2023 vs. 1.7 pp in Q4 2022) which was the main factor curbing the slowdown in Q1. A drop in consumption and inventories contribution drove the domestic demand growth down to -5.2% YoY vs. 0.6% in Q4 2022. This was also reflected in a drop in imports by 4.6% in Q1 2023 comparing to a 0.7% growth in Q4 2022. At the same, the exports growth remained clearly positive (3.2% YoY in Q1 2023 vs. 3.9% in Q4 2022). In accordance with the data published by the NBP, the recovery in exports was primarily stimulated by higher sales abroad reported by the automotive industry, which is consistent with the industrial production data for January-March 2023. The increasing, upward contribution of net exports towards GDP growth was already showing through in the NBP’s data that were indicative of a significant current account surplus (see MACROmap of 24/04/2023). We believe that trade balance and net exports contributions towards the GDP growth will keep on following the upward trend in the months to come. Exports will be driven by the economic recovery that we expect to be reported by Poland’s main trade partners, particularly Germany (see MACROmap of 17/04/2023). The growth in Polish exports will be additionally driven up in the medium term by the continuing inflow of direct foreign investments that we expect to see.

Inflation follows a downward trend

Preliminary inflation figures for May were also published today. In accordance with the flash estimate, CPI inflation in Poland fell to 13.0% YoY in May from 14.7% in April, running below the market consensus (13.2%) but above our forecast (12.7%). The GUS has published partial data on inflation breakdown by categories. Inflation was driven down by all of its main components: “food and non-alcoholic beverages”, “energy”, “fuels” and “core inflation”. Particularly noteworthy is a strong drop in core inflation, which we estimate to have fallen from 12.2% YoY in April to 11.4% in May, which suggests that inflation pressure is gradually getting weaker. Today’s data carry a slight downward risk to our forecast, in which inflation is to fall to 11.8% in 2023 vs. 14.3% in 2022.

Limited risk to our GDP growth forecast for 2023

Today’s Q1 GDP data combined with the monthly data for April published over the last couple of weeks indicate that there is a limited risk to our economic growth forecast for 2023 (1.2% vs. 5.1% in 2022). We maintain our forecast, in which the economic activity is to accelerate at a greater rate in H2 2023, which will be consistent with our “soft landing” scenario for the Polish economy. However, today’s data suggests that economic growth might be driven by other factors than we have been assuming so far. We will present our revised macroeconomic scenario in the next MACROmap.

In our opinion, today’s data on inflation and GDP is neutral for the PLN and the yields on Polish bonds.