Investment drop drags on Polish growth in Q2

Investment drop drags on Polish growth in Q2
By bne IntelliNews August 30, 2016

Polish GDP growth in the second quarter of the year was confirmed at a disappointing 3.1% by the country’s statistical office in a second preliminary estimate published on August 30.

The release confirms a flash reading from August 12 that was below analyst expectations of a 3.3% expansion. The latest data shows that a sharp fall in investment - largely owing to slow uptake of European Union funding - was a major driver of the poor result. In adjusted terms, GDP growth also came in at 3.1% y/y and 0.9% in quarterly terms, GUS data also showed.

Investment contracted 4.9% in annual terms in the second quarter, mainly because of slow disbursement of the EU funds from the new 2014-2020 budgetary perspective. That saw investment knock 0.9pp off overall economic growth. Investment added just 0.1pp compared to the final reading for January-March, the data breakdown shows.

The lull left consumption even more alone as the main pillar of growth. While it grew by 3.2% y/y in April-June Bank Millennium analysts claim the expansion should be seen as a disappointment. That said, they expect an improvement in the next quarter as the effect of the government's child benefit programme should eventually kick in.

More positively, exports contributed a 0.8pp to the overall reading, after deducting 0.9pp in the first quarter. However, the Millenium analysts sasy they remain concerned over the structure of growth.

“The [growth structure] will be less favourable in 2016 as it will rest only on consumption supported by the good situation on the labour market and the child benefit programme. When investments will pick up remains unknown,” they write. The Portuguese-owned bank expects growth of 3.2%-3.3% in 2016.

BGK, by way of contrast, paints a much more optimistic picture. “While public investment fell it grew in other sectors – including the private segment – by 5% y/y. The slowdown in investment owes to delays in the use of EU funds, so it is temporary and the next quarters will see considerable improvement,” the analysts at the state-owned bank suggest. “Claims of long-term economic growth fundamentals being undermined is exaggerated." BGK expects growth to pick up to 3.5% in the third quarter, but does not risk a full-year forecast.

Analysts may be at odds when it comes to outlook for the rest of the year or whether growth structure is healthy, but they are in agreement that growth of around 3% will not push the Monetary Policy Board (MPC) into action and interest rates are expected to remain unchanged until at least end of the year.