Polish GDP expanded 2.5% on the year in the third quarter, the country’s statistics office reported in a second estimate on November 30.

The disappointing growth was driven by the biggest fall in investment since 2010, leaving consumption the lone pillar of economic growth. The worry is that this is set to fade by mid-2017.

The GDP growth data is a confirmation of the flash estimate published in mid-November and is significantly below expectations of 2.9%. It adds to the questions over the government’s target of 3.4% for the full year.

Slower economic growth could translate into lower income from taxes and problems in meeting the assumed deficit target. The government insists the budget gap will not exceed 3% of GDP, despite inflated expenditure.

In adjusted terms in constant prices, the economy expanded 2.2% y/y and 0.2% on a quarterly basis. That is well below the 3% annual expansion and 0.9% q/q growth in the previous quarter.

While household consumption maintained its position as key driver of growth – it expanded 3.9% against 3.3% in the previous quarter - investments proved a major brake. Investment fell 7.7% in July-September, the biggest fall since 2010, after dropping 5% in the second quarter.

Poland is clearly struggling to get absorption of European Union funds under the new 2014-20 budgetary window up to speed quickly, Bank Millennium notes. 

Investment is also suffering because of “sustained uncertainty about the domestic situation in terms of institutional environment and fiscal solutions,” the bank adds, referring to the government standoff over the Constitutional Tribunal and loosened fiscal discipline. Abroad, growing fears of protectionism also play a role. 

The outlook is even less positive than the disappointing data for the third quarter. As the statistical office revised upwards GDP growth for the final quarter of 2015 to 4.6%, from 4.3% previously, it has created a high base that the October-December reading will measure against. Coupled with the current structure of growth, achieving economic expansion of 2% in the fourth quarter appears “very unlikely,” according to Bank Millennium.

“That means the entire 2016 could see growth at 2.5%-2.6%, [while] perspectives for growth in the coming quarters are not optimistic, given that growth has just one pillar, consumption, the rebound of which is set to fade in the second half of 2017,” the bank forecasts.