In accordance with the flash estimate published by the GUS, GDP growth slowed down from 2.3% YoY in Q4 2022 to -0.2% YoY in Q1 2023, running above the market consensus (-0.8%) and our forecast (-0.5%). The data published by the GUS is a flash estimate, and the full data on GDP, including information on its structure will be published towards the end of May. In our opinion, the factors that were driving the GDP growth down between Q4 2022 and Q1 2023 included a lower contribution of consumption growth (which was the effect of last year’s high base connected with the increase of households’ expenses caused by the inflow of refugees from Ukraine, reflected in a significant decline in year-on-year retail sales seen in Q1 2023), a lower contribution of investments growth (connected primarily with the slowing growth in enterprises’ investment expenditures and households’ housing investments), and a lower contribution of an increase in the inventories (as a result of reduction of excessive buffer inventories accumulated in the industrial manufacturing sector during the pandemic and after the Russian invasion on Ukraine). The factors that were driving the GDP growth up in Q1 2023 included a higher contribution of net exports (as a result of the import growth decelerating more markedly than export growth due to a poorer domestic demand). Seasonally-adjusted quarterly GDP growth accelerated to 3.9% QoQ in Q1 2023 comparing to a 2.3% drop in Q4 2022, which indicates that the GDP growth was strong and the Polish economy has avoided the so-called technical recession understood as the seasonally-adjusted GDP declining for at least two consecutive quarters. The analysis of monthly data on economic activity and business sentiments in Q1 shows that the strong rebound in activity that was seen in that period was primarily attributable to the increase in the added value in market services.

Upside risk to our GDP growth forecast for 2023

Today’s Q1 data on GDP shows that there is a slight upside risk to our economic growth forecast for 2023 (1.2% vs. 5.1% in 2022). We maintain our scenario in which the annual GDP growth will accelerate in the quarters to come, with particularly strong acceleration taking place in H2 2023. The upturn will be supported by the recovery that will be seen by Poland’s main trade partners, and by the upturn in terms of public, housing and enterprises’ investments, a strong consumption growth and restoration of inventories. This means that the acceleration of economic growth that is expected to take place in H2 2023 will be seen across many sectors and will fit in our “soft landing” scenario for the Polish economy, in which Poland’s GDP growth in 2023 will clearly follow a positive trend, and the significant economic slowdown will not be accompanied by a significant unemployment growth.

GDP data reduces room for interest rate reductions in 2023

Today’s GDP data for Q1 indicates that the annual average economic growth in 2023 is highly likely to be much stronger than assumed in the NBP's March projection (0.9%). In accordance with that projection, inflation will not return to its target by the end of 2025 if the interest rates remain stable across the entire projection horizon. In this context, today's data indicates that the room for interest rate reductions in the quarters to come is limited. It is consistent with our scenario for interest rates, in which they will be reduced for the first time in March 2024.

In our opinion, today’s data on inflation and GDP are positive for the PLN and yields on Polish bonds.

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