Are we seeing the beginning of recovery in investments?

Final GDP reading in line with the flash estimate

The final estimate by Statistics Poland (GUS) shows that GDP growth slowed from 3.4% YoY in Q4 2024 to 3.2% YoY in Q1 2025, printing in line with the flash estimate. Seasonally-adjusted quarterly GDP growth decelerated from 1.4% QoQ in Q4 2024 to 0.7% in Q1 2025.

Inventories as the main inhibitor of economic growth

GDP growth between Q4 and Q1 was mostly held by changes in inventories, whose contribution went down from 3.4 pp. in Q4 to 1.5 pp. in Q1. Although the companies replenishing their inventories did continue to support GDP growth in Q1, the impact of that factor on the GDP has weakened. The increase in inventories was consistent with PMI survey results, which showed that manufacturing companies were increasing their finished product inventories from February onwards, while March saw the increase also in terms of production inputs. We anticipate that the contribution that the increase in inventories makes towards the GDP growth will remain positive in the quarters to come amidst the moderate economic growth, but it will no longer be as strong as in Q1.

GDP growth was also weakened by public consumption, which went down by 1.2 pp. between Q1 2025 and Q4 2024. Public consumption growth plummeted from 7.6% YoY in Q4 to 2.0% YoY, coming in at the lowest level since Q1 2023. Such a strong slowdown may have been caused by the last year’s high base effect related to pay rises in the state administration.

Private consumption growth slowing from 3.5% YoY in Q4 to 2.5% in Q1 also had a negative impact on GDP growth between Q4 and Q1. Consumption was hampered by a slower growth in households’ real wages. We anticipate the consumption growth to slow again in the quarters to come due to a further slowdown of wage growth.

Are we seeing the beginning of recovery in investments?

Investment growth surged from -6.9% YoY in Q4 to 6.3% in Q1, coming in markedly above the market consensus and our forecast (3.0% both). In our view, public investments (expenditures on infrastructure co-financed with EU funds or higher expenditures on national defence) were the main driver of investment activity in Q1. At the same time, the business investment was still subdued. According to data published by Statistics Poland (GUS), the investments of enterprises employing at least 50 people fell in real terms by 3.6% YoY in Q1, following an 8.4% YoY drop in Q4. This marked the fifth consecutive quarter of decline on an annual basis. At the same time, we anticipate a recovery of investment growth in the coming quarters, driven primarily by a stronger contribution of fixed capital formation related to projects co-financed with EU funds. We expect to see the companies’ investments growth on an upward trajectory in 2025, driven by last year’s low base effects, higher expenditures made by public sector companies, investments aimed at improving efficiency, and the so-called “crowding-in” effect, where corporate investments increase in response to higher public investments (opposite of the “crowding-out” effect, where corporate investments are often complementary to public investment, e.g. fuel stations built following motorway construction, see MACROmap of 13/02/2017).

In Q1, GDP growth was also supported by a stronger contribution of net exports (-1.1 pp. vs. -1.6 pp. in Q4). Weaker domestic demand growth (4.6% YoY in Q1 vs. 5.3% in Q4) was reflected in imports growth stabilisation (3.5% YoY in Q4 and Q1). At the same time, exports growth accelerated from 0.2% YoY in Q4 to 1.1% in Q1, which is consistent with the slight recovery reported by Poland’s main trade partners.

GDP growth forecast for 2025 remains unchanged

Due to a higher starting point, today’s GDP data for Q1 combined with the monthly data for April released over the last couple of weeks carries a slight upside risk to the economic growth forecast for 2025. At the same time, markedly-weaker-than-expected PMI for May that has been released today (see today’s MACROmap) carries a downside risk to economic growth prospects. Furthermore, we believe that the announced sharp increase in tariffs on EU exports to the US represents a significant downside risk factor to GDP growth in H2 2025. Consequently, we maintain our economic growth forecast for 2025 (3.1% vs. 2.9% in 2024).

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