Private consumption decline curbs the economic growth

Economic growth in 2023 markedly below expectations

In accordance with the GUS data published today, Poland's GDP increased by 0.2% in 2023 comparing to a 5.3% growth in 2022, printing markedly below market expectations (0.5%), which were consistent with our forecast. The strong GDP growth slowdown seen last year resulted primarily from the reduction of excessive buffer inventories accumulated in the industrial manufacturing sector during the pandemic and after the outbreak of war in Ukraine. Inventories growth declined by 8.1 pp., from 1.2 pp. in 2022 to -6.9 pp. in 2023 according to our assessment. The second-biggest factor curbing the economic growth in 2023 was private consumption, which declined by 1.0% YoY comparing to a 5.2% growth in 2022 due to high base effects and elevated inflation.

Strongly disappointing private consumption figures

Based on GUS data, we estimated that real GDP growth rate in Q4 2023 stood at 0.9-1.1% YoY vs. 0.5% in Q3, which is significantly worse than we expected (1.6%). It should also be noted that the estimation referred to above is based on the assumption that GDP data for Q1-Q3 would not be revised by the GUS. Preliminary data on GDP growth in Q4 2023 will be released on 14 February.

The main reason behind the Q4 GDP growth forecast error was that consumption did not recover (contrary to our expectations), and consequently, the activity in the services sector did not accelerate. Consumption growth rate decreased from 0.8% YoY in Q3 2023 to approx. -0.1% in Q4 2023. Consumption decline was consistent with poor retail sales data for November-December 2023. Bearing in mind the real wage fund growth acceleration (see MACROpulse of 22/01/2024), today’s data is clearly indicative of households’ becoming markedly more inclined to accumulate savings in Q4. However, a probable later revision of private consumption data for Q1-Q3 2023 mentioned above could also explain the implied consumption decline in Q4.

Inventories and investments as main growth drivers in Q4

A higher contribution of inventories was the main factor driving the year-on-year GDP growth up between Q3 and Q4. Although it remained strongly negative, it went up from -7.7 pp. in Q3 to -5.9 pp. in Q4 according to our estimates. This means that the enterprises were reducing their inventories, but at a slower rate comparing to Q3. That trend was consistent with the PMI survey results. They showed that manufacturing companies stopped reducing their finished product inventories in Q4, while the reduction of inventories of inputs slowed.

Investment growing by 7.5-7.7% YoY vs. a 7.2% growth in Q3, which was consistent with our expectations, was another factor boosting the economic growth between Q3 and Q4. We believe that the recovery in terms of gross fixed capital formation was broad-based, and was related to the restructuring processes carried out by enterprises, infrastructure investment projects completed before the end of the EU financial perspective (public investments) and the Safe 2% Loan programme, which increased households’ activity in the primary housing market.

A lower contribution of net exports, which we estimate to have stood at 4.3 pp. in Q4 vs. 5.9 pp. in Q3 was the main factor curbing the recovery in Q4 2023. With a slower decline in domestic demand (-3.4% YoY in Q4 vs. -5.2% in Q3), imports were also declining more slowly (the imports data have not been published today). At the same time, the delayed recovery in the Eurozone, including the recessionary trends in the industrial manufacturing sector in Germany, curbed the growth in exports.

Economic recovery continues

Today’s data indicates that the economic recovery showing through a continuous growth in the seasonally-adjusted GDP (i.e. since Q1 2023) has slowed down strongly. This is because the seasonally-adjusted, quarterly GDP growth in Q4 stood close to the 0% mark (in accordance with our estimations). However, there is a great deal of uncertainty connected with that assessment because, among other things, the data published earlier are highly likely to be revised. Official GDP growth data for Q4 will be published in two weeks.

It can be expected that the recovery of the Polish economy in the quarters to come will be supported primarily by the falling inflation, which will be conducive to an increase in the households’ real purchasing power, which will drive the consumption growth up. Polish exports in 2024 will be growing faster than in 2023, driven by the expected gradual recovery in the Eurozone. However, the expected trends in public investments will be curbing the scale of recovery in 2024. Taking into account the cycle of absorption of EU funds (there will be a pause between two seven-year financial perspectives), gross fixed public capital formation is highly likely to decline markedly in 2024. The negative impact of that factor on investments will be partially eased by the projects carried out as part of the National Recovery Plan. We will present our revised macroeconomic scenario for 2024-2025 in the next MACROmap.

In our opinion, today’s publication of worse-than-expected GDP data for 2023 is slightly negative for the PLN and the yields on Polish bonds.