Q3 GDP growth higher than flash estimate
In accordance with the data published by the GUS, GDP growth decelerated to 5.3% YoY in Q3 from 11.2% YoY in Q2, running above the market consensus (5.1%) which was in line with the GUS flash estimate published earlier and our forecast. The economic growth was strongly driven down mainly by the recession of the last year’s low base effect related to the COVID-19 pandemic and associated restrictions curbing the economic activity in Q2 2020. Seasonally-adjusted quarterly GDP growth accelerated from 1.8% in Q2 to 2.3% in Q3, which shows that economic growth has accelerated. This means that in Q3 GDP exceeded the pre-pandemic level (Q4 2019) by 3.1%.
Inventory rebuilding was a key driver of Q3 GDP growth
In the structure of economic growth in Q3, the contribution of inventory growth (3.7 pp vs. 2.8 pp), which was higher than in Q2, is particularly noteworthy. As a result, the increase in inventories was the factor that made the highest contribution to GDP growth and at the same time had the strongest impact on boosting GDP growth rate compared to Q3. The average 2-quarter contribution of inventory growth to GDP in Q3 was at an all-time high. The historically high contribution of inventory growth was due to the effect of last year's low base (a strong reduction in inventories in Q3 2020 due to reduced economic activity caused by the pandemic and restrictions introduced) and the rebuilding of inventories by businesses in Q3 2021 to ensure production continuity amid persistent bottlenecks in global supply chains.
Economic growth in Q3 was also boosted by investment, which accelerated from 5.6% YoY in Q2 to 9.3% YoY, which was above our forecast (7.0%). As a result, the contribution of investment to GDP growth increased (in Q3) to 1.5 pp vs. 0.9 pps. The acceleration in total investments took place amidst a slowdown in investments by medium and large enterprises (see MACROmap of 29/11/2021). Combined with data on the structure of construction and assembly production in Q3, this suggests that rising public investment was the main source of the acceleration in gross fixed capital formation in Q3.
Strong slowdown in consumption growth
Consumption growth slowed sharply to 4.7% YoY in Q3 from 13.1% in Q2, mainly due to the recession of the effect of the low last year's base associated with the negative impact of lockdown on consumer demand in Q2 2020. As a result, consumption was the second most influential factor (after inventories) for economic growth in Q3 (its contribution to annual GDP growth was 2.7 pp). Particularly noteworthy is the strong growth in consumption, seasonally adjusted, which increased by 4.3% compared to Q3. Strong support for consumption in Q3 came from the effect of pent-up household demand and the continuing improvement in the labour market. Net exports, however, had a negative impact on GDP growth (-2.7 pp vs. -0.3 pp in Q2) with imports growing stronger than exports as a result of a quick growth in domestic demand and global supply chains disruptions curbing the growth in exports.
GDP and inflation data support scenario of further interest rate hikes
Q3 GDP growth was higher than expected in the November NBP inflation projection. Combined with today's significantly higher than expected inflation flash estimate for November (7.7% YoY), this points to a high probability of a continuation of the interest rate hike cycle at the December meeting of the Monetary Policy Council.
Today's Q3 GDP growth data, combined with the release of better-than-expected data on industrial production and retail sales in October, signal a significant upside risk to our 2021 economic growth forecast (4.9%). We will publish our revised macroeconomic scenario in the upcoming MACROmap.
In our opinion, today’s data on inflation and the GDP is slightly positive for the PLN and the yields on Polish bonds.