Economic growth of Poland compared to EU: From tiger to marauder

Dec 1, 2016 12:06 PM|

The data published on Wednesday by the Central Statistical Office of Poland shows that the domestic economy has been expanding at its slowest pace in three years. However, it wasn’t the falling economic growth that was the most troublesome, but the factors determining said growth. They suggest that the end of the year, it might be even weaker, and for the first time ever the growth pace of the European Union was higher than Poland’s – commented Marcin Lipka, the senior analyst of

Marcin Lipka, główny analityk

Yesterday, the Central Statistical Office of Poland confirmed its initial expectations from mid-November and announced that the domestic economy is growing at the pace of 2.5 percent YoY. This is the worst result since the 3rd quarter of 2013. It is worth mentioning that Poland’s result was weak when compared to the European Union, even though over the past couple of years we got used to the fact that the economic growth pace in our country is significantly higher than in the EU.

Over the past decade, the GDP growth in Poland was approximately 2.7% higher than in the EU. However, the Union was plagued by two crises, which caused this difference to be higher by approximately 1.4% YoY from mid-2012. In the last quarter, it was reduced to .65% YoY, which means that it was the second worst result in the past decade. If the Polish reading is adjusted seasonally, the way the data is presented by Eurostat, then the result from the 3rd quarter is the worst it has been in over 10 years.

A troublesome mixture of the growth

Paradoxically, the growth pace wasn’t the worst news. In economy, it does happen that one or two quarters can be weaker against a relatively good overall situation. In 2016, however, the growth was determined to a greater extent by the increase in the overall consumption (household spending and the public sector) and reserves. On the other hand, the foreign trade balance is weaker and the collapse in investments has deepened.

Since the beginning of the year, the changes in inventories (reserves) added almost one percentage point to the GDP. Historically, the influence of the reserves (materials, production in process, finished products) on the GDP heads towards zero. If this share of the reserves is deleted, which is impossible to maintain in the long term, then the domestic economy has been growing in the first three quarters at the pace of 2.0 YoY compared to the analogical period from the year before.

In the 3rd quarter the pace of investments shrinkage quickened. They subtracted 1.4% (app. 0.9 percentage points since the beginning of the year), which was a similar result to what was recorded when the eurozone crisis peaked, as well as during the largest economic downturn in decades from 2008 to 2009.

Even though this downturn was, to a great extent, caused by the reduction of the local governments investments related to the delay of the projects prepared with the use of the EU funds, the private sector gets more and more cautious in making decisions on spending. According to an explanation prepared by the Central Statistical Office of Poland, “the financial results of non-financial companies in the term I-IX of 2016,” the investments of the companies shrunk by 9.1%, while in an analogical time last year, they increased by 12.3%. Apart from lowering the expenditures on the buildings and structures (by 17.8 percent), there was also a reduction (by 4.3 percent) on the machines, technical equipment and tools.

The 4th quarter could be disastrous

Taking into consideration the trends in investments and the data for October, it cannot be expected that the situation in this quarter will improve significantly. However, we can anticipate that the investments will subtract approximately 1.3% from the general GDP reading in the last three months of this year.

A strong, positive input to the GDP can be made by the households data. Last quarter, thanks to the job market’s positive situation maintaining and the payouts from the 500+ program, the private consumption added as much as 2.3% to the general growth. It is very likely, then, that this situation will not change until the end of the year.

The pace of public spendings might slow down. It added approximately 0.7% to the GDP (from 0.8 percentage points at end of the year in the 3rd quarter), which accounted for the growth exceeding 4.3%. According to the plan by the Ministry of Finance for 2016, public consumption was supposed to increase by 3.4% for the entire year. This means that the public spending input can even decrease to the level of 0 in the 4th quarter of 2016.

The trade exchange can also have a negative impact on the final data on the growth. Since the beginning of the year, its input to the GDP was practically non-existent. In the 3rd quarter, the foreign trade balance with worsened, which may suggest that the negative influence of higher consumption and increasing prices of the raw materials are not balanced by more competitive currency exchange rates for exporters. As a result, the net export could reduce the growth by 0.3% (similar to the 3rd quarter).

When we add all the components together, we get the GDP at the level of 0.7% YoY for the 4th quarter. The reserves weren’t included in the calculations. There are, however, fewer chances for them to have a positive influence on the final reading for 6th quarter in a row, thus it can be assumed that their input will be neutral. If this survey turns out to be true, the growth pace in Poland will be lower than in the EU for the first time since the extension of the Union in 2004.


Dec 1, 2016 12:06 PM|

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