In accordance with the today's GUS reading, GDP growth rate in Q1 amounted to 4.0% YoY vs. 2.5% in Q4 2016 and thus was in line with our forecast and above the market consensus (3.9%). Seasonally adjusted GDP increased by 1.0% QoQ in Q1 vs. a 1.7% increase in Q4. The GUS reading is a flash estimate. Full GDP data including its structure will be published towards the end of May.

We believe that the main factor behind the acceleration of GDP growth in Q1 were public investments and investments of companies controlled by the public sector, implemented with the use of EU funds. Higher growth of fixed capital formation in these segments was boosted by low base effects from the year before (in Q1 2016 they decreased in nominal terms by more than 30% YoY). Data on industrial production and construction--assembly production in the January-March period point with a high probability to an increase in the dynamics of corporate and households' investments in Q1. Consequently, we believe that the growth rates of all the three components of investments stood above zero in Q1.

The acceleration in GDP growth rate in Q1 occurred most probably also due to higher contribution of private consumption. In our view, its real dynamics decreased slightly due to the sharp increase in inflation (from 0.2% YoY in Q4 up to 2.0% in Q1), which reduced the purchasing power of consumers. The higher contribution of private consumption to GDP resulted, however, from increase in the weight of consumption in GDP between Q4 and Q1.

Today's reading confirms our scenario, in which the slowdown of economic growth ended in Q4 2016. We expect that the annual GDP growth rate will be close to 4% YoY in subsequent quarters of 2017. The main factor behind the high GDP growth will be public and corporate investments implemented with the use of EU funds. The rebound in investments will contribute to a significant acceleration in imports growth and – consequently – to decreased contribution of net exports to growth. This decrease will take place despite a significant acceleration in exports caused by the expected by us recovery in global trade.

Today's GDP data that are higher from the market consensus are slightly positive for PLN and negative for debt prices. They also do not change our monetary policy outlook (interest rate hikes cycle to begin in November 2018).

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