In line with the GUS flash estimate, GDP growth increased to 8.5% YoY in Q1, up from 7.6% YoY in Q4 2021, running above the market consensus (8.3%) and our forecast (8.1%). The data published by the GUS is a flash estimate, and the full GDP data, including information on its structure, will be published at the end of the month. In our opinion, GDP growth accelerated on the back of higher contributions from net exports (effect of faster export growth relative to Q4 with stabilisation of import growth) and consumption (effect of increased expenses related to the influx of refugees from Ukraine, release of pent-up household demand, tax changes introduced by the Polish Deal and last year’s low base related to the impact of restrictions). We estimate that in Q1 the contribution of the increase in inventories to GDP, related mainly to the continued build-up of buffer inventories by businesses, remained significant, although its level decreased compared to Q4. We also estimate that the contribution of investments to economic growth in Q1 contracted on the back of slower growth in corporate investments and a deepening decline in household housing investments due to rising interest rates. Seasonally-adjusted quarterly GDP growth climbed to 2.4% in Q1 relative to 1.8% in Q4,

showing that economic growth has accelerated.

Will there be a technical recession in 2022?

Today’s data on GDP growth in Q1 signals a slight upside risk to our forecast of economic growth in 2022 (4.1%). However, we stand by our scenario projecting that in the coming quarters GDP growth will decelerate sharply, mainly due to a substantial drop in the contribution of inventories growth, a slowdown in the economic growth of Poland’s main trading partners, as well as a decline in consumption growth due to a continued rise in inflation (see MACROmap of 16/05/2022). In line with our forecast, the coming quarters will continue to see a considerable growth in economic activity, which will be reflected in stable, though visibly slower than in Q1, seasonally-adjusted GDP growth. In our opinion, the probability of a so-called technical recession (decline in seasonally adjusted GDP for at least two consecutive quarters) is low. However, it cannot be ruled out that such a scenario will materialise in H2 2022. Nevertheless, any decline in GDP in this period will not be accompanied by a strong deterioration in the labour market, which is crucial for assessing the social impact of a recession and the potential fiscal and monetary policy response.

The annual seasonally adjusted GDP growth in Q1 (9.1%YoY) was significantly higher than the growth expected in the NBP’s March projection (6.8%). This strongly supports our scenario anticipating that the MPC will continue to tighten the monetary policy in the coming months and that the reference rate hike cycle will end in Q3 at 7.0%.

We believe that today’s inflation and GDP figures are slightly positive for the PLN exchange rate and yields on Polish bonds.

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