Stagnant Polish GDP
In accordance with the flash estimate published by the GUS, Polish GDP went up from 0.5% YoY in Q3 to 1.0% YoY in Q4, in line with our forecast and the market consensus. Seasonally adjusted GDP in Q4 was unchanged compared to Q3, while Q3 showed an increase of 1.1% over Q2. This means that, despite the mild upward trend recorded in 2023, GDP in Q4 2023 was higher than in Q4 2021 (and thus in the period before the outbreak of the war in Ukraine) by 2.8% only. This is a good illustration of the negative impact of the war in Ukraine on economic activity in Poland, which was mainly constrained in 2022-2023 by high inflation, deterioration of the investment climate, tightening of monetary policy and weakening of external demand (also largely the result of the tightening geopolitical situation).
Increase in households' propensity to save
Noteworthy in the Q4 GDP data was the reduction in the growth rate of private consumption, which declined by 0.1% YoY compared to growth of 0.8% in Q3. The deceleration in consumption growth in Q4 comes as a surprise in light of the strong acceleration in real wage fund growth in the economy recorded in Q4. This suggests that households' propensity to save increased significantly in Q4. In our view, this increase will not last and, in H1 2024, the reduction in the propensity to save will be supported by a recovery in consumer demand, boosted by the expected significant fall in inflation, high nominal wage growth rate in the enterprise sector, wage increases in the budgetary sphere and the valorisation of the 500+ programme to 800+.
Contribution of inventory growth to GDP growth still strongly negative
The biggest contributor to the increase in GDP growth between Q3 and Q4 was the increase in the contribution of changes in inventories from -7.7 pp in Q3 to -5.4 pp. Restricting the build-up of inventories by enterprises was therefore still a factor holding back GDP growth in Q4, but the impact of this factor diminished. This was consistent with the business survey results (PMI). These indicated that manufacturing firms stopped reducing their inventories of finished goods in Q4, and the reduction in inventories of inputs slowed. We expect that in the following quarters, as consumer demand recovers, the propensity of firms to reduce inventories will decline, which will be reflected in the positive contribution of their changes to GDP growth from Q1 onwards.
EU 'booster' fostered investment growth rate
Investment growth accelerated in Q4 to 8.7% YoY, compared to 7.2% in Q3. We believe that an important factor supporting the increase in the investment activity in Q4 was the efforts of public finance sector units to utilise and settle this year the EU funds available under the previous 2014-2020 EU multiannual financial perspective. This was reflected in faster growth in construction value added (5.3% YoY vs. 2.8% in Q3). In the following quarters, we expect a marked slowdown in total investment, which will be related to the expiry of the aforementioned impact of the EU spending cycle and, to a lesser extent, a slowdown in corporate investment growth.
Surprisingly high export growth
The factor that had the strongest impact on slowing economic growth in Q4 was the decline in the contribution of net exports. Its contribution to GDP growth decreased from 5.9 pp to 3.3 pp. The marked reduction in the contribution of net exports was in line with our expectations, while the export and import growth were significantly above our forecasts. Particularly surprising was the relatively high growth rate of exports in Q4, which amounted to 2.7% YoY compared to -11.0% in Q3. What contributed to the increase in export growth in Q4 was the cessation of the high base effect from Q3 2022 and the marked acceleration in exports of services signalled in the balance of payments data. The data on Polish exports in Q4 2023 indicate its high resilience to the significant strengthening of the PLN exchange rate recorded in Q4 and the economic stagnation in Poland's main trading partners.
Return of economic recovery in Q1
We expect Poland's economic recovery to return in Q1, supported mainly by consumption growth and the accompanying increase in value added in services. This will be reflected in QoQ seasonally adjusted GDP growth and in an increase in annual GDP growth rate from 1.0% in Q4 to 1.5%. We maintain our forecast that GDP will grow by 2.8% in 2024.
We believe that today’s GDP data for Q4 is neutral for the PLN and yields on bonds.
