GDP data above the flash estimate
In accordance with the final estimate published by the GUS, GDP growth accelerated from -0.6% YoY in Q2 to 0.5% YoY in Q3, running slightly above the flash estimate figure (0.4%) and in line with our forecast. Seasonally-adjusted quarterly GDP growth accelerated from 0.3% QoQ in Q2 to 1.5% in Q3. As a result, Q3 was the third consecutive quarter to see a growth in the seasonally-adjusted GDP.
Net exports remain the main GDP growth driver
GDP growth between Q2 and Q3 was driven up by a higher contribution of net exports (5.9 pp. in Q3 vs. 2.1 pp. in Q2), private consumption (0.5 pp. vs. -1.6 pp.) and government expenditures (0.6 pp. vs. 0.4 pp.). A lower contribution of inventories (-7.7 pp. vs. -3.0 pp.) and investments (1.2 pp. vs. 1.5 pp.) had the opposite impact. Thus, net exports were the main source of economic growth in Q3, as in Q2. Net exports contribution towards the GDP growth in Q3 was higher because the decline in imports (-20.3% in Q3 vs. -6.8% in Q2) was deeper than in exports (-11.0% YoY vs. -3.2%). Those trends were already showing through last quarter’s data indicating at Poland’s growing trade balance surplus (see, for example MACROmap of 20/11/2023).
Private consumption above the 0% mark again
It is also worth noting that private consumption growth accelerated, from -2.8% YoY in Q2 to 0.8% in Q3, which is largely connected with the inflation drop and the increase in households’ real wages. Consumption growth was also driven up by the easing effect of last year’s high base connected with the increase in households’ expenses caused by the inflow of refugees from Ukraine.
Continuing, strong reduction of inventories supported by restructuring processes
Inventories provided a further, substantial downward contribution towards the GDP growth, which is somewhat surprising. It indicates that the reduction of excessive buffer inventories accumulated in the manufacturing sector during the pandemic and after the outbreak of war in Ukraine has accelerated markedly in the last quarter. It is consistent with the trends observed in the results of the PMI survey for Polish manufacturing, which were indicative of the companies purchasing increasingly less intermediate goods and their inventories becoming ever smaller. In our opinion, it reflects the restructuring processes in the Polish manufacturing sector, which adjusts its activity to the number of new orders, which has become substantially lower.
Slight slowdown in investment growth
Investment growth slowed in Q3 to 7.2% compared to 10.5% in Q2. We believe that an important factor sustaining the investment activity in Q3 were the efforts of public finance sector units to utilise and settle this year the EU funds available under the previous EU multiannual financial perspective 2014-2020. Investment activity was also sustained by the high investment growth rate of enterprises 50+. We will discuss the investment outlook in more detail in the next MACROmap.
The Polish economy has entered a phase of recovery
We believe that Q3 saw the start of the recovery phase in Poland. In the quarters ahead, this recovery will be supported by a fall in inflation (acting to boost consumption), a recovery in housing investment and an increase in external demand favouring growth in exports and corporate investment. Referring to our previous assessment that there was a 'soft landing' of the Polish economy in 2023, we can now see that this process has been completed.
The decline in inflation has clearly slowed
In accordance with the flash estimate, CPI inflation in Poland fell to 6.5% YoY in November from 6.6% in October, running in line with the market consensus and below our forecast (6.6%). GUS published partial data on the inflation structure, which contained information about price growth rates for the following categories: “food and non-alcoholic beverages”, “energy” and “fuels”. What pushed inflation down was the lower price growth rate in the categories of: ‘food and non-alcoholic beverages’ (7.2% YoY in November vs. 8.0% in October) and ‘energy’ (7.9% vs. 8.3%), as well as a reduction in core inflation, which, according to our estimates, decreased in November to 7.3% YoY vs. 8.0% in October. Higher growth rate of the prices of fuels (-5,7% YoY in November vs. -14.4% in October ) had the opposite effect.
High uncertainty about inflation prospects in the coming months
We forecast inflation to increase to 6.6% YoY in December. We believe that the restoration of the standard VAT rate on food and the increase in energy prices will hold back the decline in inflation in early 2024. Despite this, we forecast that inflation will resume its downward trend in Q1 2024 and reach its local minimum of 4.6% in Q2. The main risk factor for our inflation scenario is the regulatory uncertainty related to the new government's decisions on the future of shielding measures aimed at curbing consumer price increases (see MACROmap of 06/11/2023). At the same time, given the continued strong inflationary pressures, we believe that there is no room for further interest rate cuts. This supports our scenario of interest rates stabilising in Poland until the end of 2024.
In our opinion, today’s data on GDP and inflation is neutral for the PLN and the yields on Polish bonds.
