Private consumption hits a record high

Final reading ahead of the flash estimate

In accordance with the final estimate published by the GUS, GDP growth accelerated from 1.0% YoY in Q4 2023 to 2.0% YoY in Q1 2024, printing slightly above the flash estimate figure (1.9%), and above the market consensus (1.8%) and our forecast (1.2%).

Seasonally-adjusted quarterly GDP grew from 0.0% QoQ in Q4 2023 to 0.5% in Q1 2024. The moderate rebound 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 “transportation and storage”, “trade and repair of motor vehicles”, “professional, scientific and technical activities and administration and support services”, and “real estate market services”. At the same time, Q1 saw a strong decline in seasonally-adjusted added value in the construction (-5.7% QoQ) and industrial manufacturing (-2.7%) sectors.

Evolution of inventories as the main driver of economic growth

GDP growth between Q4 2023 and Q1 2024 was driven primarily by an increase in contribution of inventories, up from -6.4 pp. in Q4 to -2.8 pp. in Q1. Although GDP growth in Q1 was inhibited by enterprises trying to curb the increase in their inventories, but the impact of that factor has decreased. It was consistent with the PMI survey results, which showed that manufacturing companies were reducing both their output and input product inventories in Q1. We expect the companies to be less inclined to reduce their inventories in the quarters to come along with the continuing increase in consumer demand, which will be reflected in a positive contribution of the increase in inventories towards the GDP growth.

GDP growth between Q1 2024 and Q4 2023 was also accelerated by the contribution of private consumption, which went up by 2.7 pp. Consumption accelerated from 0.0% YoY in Q4 to 4.6% in Q1 (the strongest growth since Q2 2022). Consequently, seasonally-adjusted private consumption hit an all-time high, going up above the local peak reached in Q2 2022 by 0.3%. Private consumption was accelerated by a strong rise in households’ real wages. We expect the consumption growth to be relatively strong in the quarters to come, boosted by a strong growth in nominal wages in the enterprise sector and pay rises in state administration units.

Investments fall short of expectations

Investments shrank from 15.8% YoY in Q4 2023 to -1.8% in Q1 2024, printing markedly below our expectations (0.5%) and market consensus (2.6%). We believe that the investment activity in Q1 was largely curbed by a reduced absorption of funds as part of EU’s multi-annual financial framework for 2021-2027 (see MACROmap of 25/03/2024). A negative surprise sprung by the scale of decline in total investments was most likely connected with the decline in enterprises’ investment activity, which was stronger than we had initially expected. In accordance with the GUS data published last week, gross fixed capital formation growth in enterprises having at least 50 employees slowed down by 2.2% YoY in Q1 2024 vs. a 7.9% growth in Q4 2023, which represented the slowest growth since Q4 2020 (see today’s MACROmap).

Reduced activity in foreign trade

GDP growth in Q1 was also curbed by a lower contribution of net exports (0.4 pp. vs. 2.4 pp. in Q4). A limited scale of domestic demand recovery (1.7% YoY in Q1 vs. -1.5% in Q4) was reflected in but a slight acceleration of imports growth (from -0.5% YoY to -0.1% in Q1). At the same time, exports growth slowed from 3.6% YoY in Q4 2023 to 0.5% in Q1 2024, which is consistent with stagnation trends observed in the countries that are Poland’s main trade partners.

Risk to our GDP growth forecast for 2024

Baseline having been raised, today’s Q1 GDP data combined with monthly data for April published over the last couple of weeks are indicative of an upside risk to our economic growth forecast for 2024 (2.8% vs. 0.2% in 2023). However, a less favourable structure of economic growth in Q1 (a decline in investments, the evolution of inventories as the main growth driver, and a limited scale of recovery in exports), and markedly worse-than-expected PMI results for May (see today’s MACROmap) partially mitigate that risk. Nonetheless, our scenario of economic activity acceleration in the quarters to come has not been altered. We will present our revised macroeconomic scenario in the next MACROmap.

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