Poland: Economy growth contracts to 3.6% year-on-year

The third quarter contribution from private consumption came in at just 0.5pp vs. 3.6pp in the second quarter. In year-on-year terms, private consumption growth declined from 6.4% in 2Q22 to just 0.9% in 3Q22. The reason is high inflation growth, which has almost continuously outpaced wage growth since May. This will not change in 1H23 and is one of the main reasons for the slowdown we expect for next year. Adding to this is generally worse household sentiment, which is curbing demand for durable goods. Perhaps this is a delayed impact of the outbreak of the war, as 2Q22 consumption was relatively strong.

GDP structure in Poland

A significant deterioration in consumption in 3Q22; inventories are still quite strong

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The contribution from inventories was even higher than in 2Q22 (2.2pp vs. 1.8pp). This could mean that (a) companies were taken by surprise by low demand and were unable to adjust production in time, or (b) as a precautionary measure, they increased inventories in the face of supply shortages and accelerating inflation.

However, investment performed relatively poorly (adding only 0.3pp to GDP growth, down from 1pp a quarter earlier). This is partly due to the difficult situation facing the construction industry. Infrastructure investment work has been hurt either by a lack of access to the Recovery Fund, or a strong increase in the cost of work, which has prompted companies to walk off construction sites and made it difficult to award tenders. Residential construction, meanwhile, is facing a slump in demand, due to high interest rates and a collapse in mortgage lending, among other factors. In YoY terms, investment growth fell from 6.6% to 2%.

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As expected, the contribution of net exports to GDP improved (from -0.7pp to +0.6pp). At the turn of the year, companies tried hard to increase inventories, fearing renewed disruptions in global supply chains. Import growth has been slowing for several quarters, while exports have begun to accelerate since 2Q22 amid softening domestic demand and the weakening zloty.

The overall economic picture in 3Q22 is lacklustre, despite the fairly strong YoY headline GDP growth and an acceleration in seasonally-adjusted GDP growth to 1% QoQ in 3Q22. We view this acceleration as a rebound after a strong 2.3% quarter-on-quarter decline in 2Q22. Significant weakness in consumer demand bodes poorly for the turn of the year, with companies more likely to look to adjust inventories as price increases slow down. We still think GDP growth should be close to 5% YoY this year (mainly due to strong 1H22), with GDP slowing to around 1% YoY in 2023.