Economic growth in 2021 better than expected by the market

In accordance with the GUS data published today, Poland's GDP increased by 5.7% in 2021 comparing to a 2.5% drop in 2020, which was consistent with our forecast and above the market expectations (5.5%). GDP data reflect an increase in the economic activity, which was driven, among other factors, by the release of the households’ pent-up demand and a global trade recovery. At the same time, economic growth in 2021 was boosted by low base effects connected with the outbreak of the COVID-19 pandemic in 2020

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Domestic demand driving economic growth up in Q4 2021

Based on GUS data, we have estimated that real GDP growth rate stood at 7.2% YoY in Q4 2021 vs. 5.3% in Q3 2021, which was consistent with our expectations. Data structure was also largely consistent with our assessment.

With the contribution of 3.9 pp, private consumption was the main driver of economic growth in Q4 2021. Consumption growth rate increased from 4.7% YoY in Q3 2021 to approx. 8.0% in Q4. Consumption was driven up by a favourable situation in the labour market, and by a strong growth in nominal wages in particular. Private consumption was additionally boosted by low base effects related to restrictions adopted in Q4 2020, which included the closure of the shopping malls.

In the structure of economic growth in Q4 2021, the contribution of inventory change (4.1 pp vs. 3.7 pp in Q3) is particularly noteworthy. The contribution was the highest in the recorded history. We believe it was connected with the companies replenishing their inventories to ensure the continuity of production given the persisting bottlenecks in global supply chains. The companies also wanted to protect themselves against the expected increase in the prices of materials, and this was another reason for increasing the inventories. This scenario is supported by the results of the PMI survey.

Economic growth in Q4 2021 was also boosted by investments, which accelerated from 9.3% YoY in Q3 to approx. 12% YoY in Q4. As a result, the contribution of investments to GDP growth increased from 1.5 pp in Q3 to approx. 2.5 pp in Q4. Nonetheless, the investment growth was much slower than we had expected (18.4%). Taking into consideration the data on construction and assembly production structure in December, we believe that lower investments in infrastructure were the main reason behind this negative surprise.

A lower contribution of net exports, which we estimate to have stood at -3.3 pp in Q4 vs. -2.7 pp in Q3 was the main factor curbing the recovery in Q4 2021. Accelerated consumption, investment and inventories growth drove the domestic demand up from 8.0% YoY in Q3 to 10.5% in Q4. Therefore, we expect the import growth to have accelerated strongly in Q4 2021 (the data on imports has not been published today). At the same time, disruptions in global supply chains were curbing the growth in exports.

Economic growth to slow down in 2022

Rapid economic growth in Q4 2021 will boost the average annual GDP growth in 2022 due to the so-called carry-over effect. At the same time, we believe there is a downside risk to our economic growth forecast for 2022 (4.3%), which is connected with the investment growth in Q4 2021, which was much lower than we had expected, and with the continuing dispute between the EU and Poland, which postpones the launching of the National Recovery Plan.

In our opinion, today’s publication of GDP data for 2021, which is better than the market expected, is slightly positive for the PLN and the yields on Polish bonds.

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