Surprising growth in investments

Final reading in line with the flash estimate

In accordance with the final estimate published by the GUS, GDP growth accelerated from 2.0% YoY in Q1 to 3.2% YoY in Q2, running in line with the flash estimate figure and above market consensus (2.7%) and our forecast (2.3%). Seasonally-adjusted quarterly GDP grew from 0.8% QoQ in Q1 to 1.5% in Q2.

Inventories as the main driver of economic growth acceleration

GDP growth between Q1 and Q2 was driven up primarily by an increase in inventories, up from -2.8 pp. in Q1 to -1.1 pp. in Q2. Although GDP growth in Q2 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 Q2. 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.

Investment growth comes as a positive surprise

Gross fixed capital formation was another factor boosting the economic growth. Investment growth rate increased from -1.8% YoY in Q1 to 2.7% in Q2, printing markedly above our expectations and market consensus (-3.9% and -0.8%, respectively). Those figures are particularly surprising given the data on the investment activity of the enterprises. In accordance with the GUS data published this week, gross fixed capital formation growth in enterprises having at least 50 employees slowed down by 8.1% YoY in Q2 vs. a 2.2% drop in Q1, which represented their slowest growth since Q3 2020. Such a positive surprise regarding the growth in total investments is most likely connected with the growth in public expenditures, which was stronger that we initially expected. The latter is likely to have resulted from NRP pre-financing or from the purchases of military equipment for the purposes of national defence.

Consumption recovery stronger than expected

Consumption growth rate increased from 4.6% YoY in Q1 to 4.7% in Q2. Consumption was accelerated by a strong rise in households’ real wages boosted, among others, by pay rises in state administration units. We expect the consumption growth to slow down in the quarters to come due to a slowdown in nominal wage growth accompanied by inflation rise, but nonetheless it will stay relatively strong.

Foreign trade in the red

GDP growth in Q2 was curbed, however, by a lower contribution of net exports (-0.8 pp. vs. 0.4 pp. in Q1). A strong recovery in domestic demand (4.0% YoY in Q2 vs. 1.6% in Q1) boosted by total consumption and investments translated into a significant acceleration of imports growth, from -0.1% YoY to 5.4% in Q2. At the same time, the export growth rate increased from 0.5% YoY in Q1 to 3.4% in Q2, which is somewhat surprising given the stagnation trends reported by Poland’s main trade partners.

Upside risk to our GDP growth forecast for 2024

Today’s Q2 data on GDP shows that there is a slight upside risk to our economic growth forecast for 2024 (2.3% vs. 0.2% in 2023) due to the baseline having been raised. At the same time, weaker-than-expected monthly data for July (see MACROpulses of 21/08/2024 and 22/08/2024) partially compensate that risk. We will present our revised macroeconomic scenario in the next MACROmap.

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