GDP data below expectations

In accordance with the flash estimate published by the GUS, Polish GDP dynamics fell from -0.3% YoY in Q1 to -0.5% YoY in Q2 2023, running below the market consensus which was consistent with our forecast (-0.2%). The data published by the GUS is a flash estimate and the full data including information on its structure will be published at the end of August.

In our view, a lower contribution from private consumption contributed to the decline in GDP growth in Q2 compared to Q1. Further YoY decline in private consumption was mainly due to the effect of last year's high base related to the increase in household spending caused by the influx of refugees from Ukraine, reflected in the significant YoY decline in retail sales recorded in Q2. Another factor holding back growth in Q2 was, in our view, a smaller contribution from change in stocks, as a result of a further reduction in excess buffer stocks accumulated in manufacturing during the pandemic and after the outbreak of war in Ukraine. This trend was visible in the business survey results (PMI). We believe that the contributions of net exports and investment to GDP growth in Q2 remained at levels similar to those recorded in Q1.

Weaker GDP data support interest rate cut scenario

Seasonally-adjusted quarterly GDP growth fell from 3.8% in Q1 to -3.7% in Q2. Thus, the so-called technical recession, i.e. a decline in seasonally adjusted GDP for two consecutive quarters, was not recorded in Poland. We believe that economic growth will accelerate in H2 2023, supported by a decline in inflation (boosting domestic demand) and the abatement of the effects of the high base from a year ago. Thus, we maintain our ‘soft landing’ scenario of the Polish economy (see MACROmap of 31/07/2023). Nevertheless, today's Q2 GDP data signal a slight downside risk to our 2023 economic growth forecast (0.8% vs. 5.1% in 2022).

The Q2 GDP growth published today is clearly below the figure presented in NBP's July inflation projection (-0.1% YoY). Combined with our forecast of a rapid decline in inflation in the following months (see MACROpulse of 14/08/2023), today's data supports our scenario that interest rates will be cut by a total of 50bp by the end of 2023.

In our opinion, today’s GDP data is slightly negative for the PLN and yields on Polish bonds.

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