Economic growth in 2016 slightly above expectations

In accordance with the flash estimate, released by GUS today, GDP in Poland rose by 2.8% in 2016 vs. 3.9% in 2015, which was slightly above the market expectations (2.7%). The slowdown of economic growth last year was mainly due to sharp decline in investments (down by 5.5% vs. a 6.1% increase in 2015). The decline in gross fixed capital formation was mainly caused by significant reduction of public and corporate investments, which was largely attributed to lower absorption of EU funds after the end of the 2007-2013 programming period (see MACROmap of 23/1/2017). Conducive to slower economic growth was also lower contribution of net exports (from 0.6 pp down to 0.1 pp) related to higher imports growth given stable growth of exports. The negative impact of the decline in investments and lower contribution of net exports have not been offset by a sharp increase in the contribution of inventories (from -0.2 pp in 2015 up to 1.0 pp) and acceleration in growth of private consumption from 3.2% up to 3.6% (this factor increased GDP growth by only 0.2 pp), boosted by improvement in the labour market and disbursements under the Family 500+ scheme.

Increase in inventories responsible for half of GDP growth in Q4

Based on GUS data, we estimated that real GDP growth rate stood at 2.6% YoY in Q4 2016 vs. 2.5% in Q3. Full data on GDP structure in Q4 will be released by GUS towards the end of February. In our view, the acceleration in economic growth is mostly due to the increase in the contribution of net exports from 0.4 pp in Q2 to 0.7 pp, caused by further sharp slowdown of imports dynamics. GDP growth in Q4 was also boosted by inventories (positive contribution rose from 1.1 to 1.3 pp). This means that the increase in inventories was responsible for half of the economic growth in Q4. Despite the increase from -7.7% YoY in Q3 to -5.5% in Q4, investment growth rate continued to be significantly negative. However, the contribution of this factor to GDP growth dropped by 0.2 pp due to higher share of investments in GDP between Q3 and Q4. The economic growth in Q4 was also negatively influenced by private consumption (contribution lower by 0.3 pp), whose growth rose slightly from 3.9% YoY in Q3 to 4.0% YoY, with simultaneous decrease of consumption share in GDP between Q3 and Q4.

This is the end of economic slowdown

The flash GDP data published today are in line with our scenario, in which the economic slowdown ended in Q4 2016. We expect that in subsequent quarters of 2017, GDP dynamics will stay within an upward trend reaching a level close to 4.0% YoY in Q4 2017 (see MACROmap of 12/12/2016). GDP growth will be mainly boosted by investments, mostly public ones and those of public-sector-controlled companies, implemented with the use of EU funds. Our scenario is supported by data on disbursement requests within the 2014-2020 programming period, pointing to a sharp increase in the absorption of EU funds in Q4 2016. The strong recovery in investments will contribute to a significant acceleration in imports growth and – consequently – decreased contribution of net exports to growth. This decrease will take place despite significant acceleration in exports caused by the expected by us recovery of global trade.

The data on economic activity in Q4 pose a significant upside risk to our forecast of economic growth in 2017 (3.0%). We will present our latest macroeconomic scenario in the next MACROmap.

Today's better-than-expected data on GDP in 2016 are positive for PLN and negative for the prices of the Polish debt, we believe.

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