Polish GDP remained unchanged year on year in the first quarter, easing from an expansion of 0.6% y/y in the preceding three months (chart), seasonally adjusted data from the statistical office GUS showed in a preliminary reading on May 31.

GUS retained its flash reading from mid-May, in line with market expectations. Private consumption, the longtime driver of Polish growth, weakened further as inflation continued to eat into wages’ real value, even though price growth has been slowing down steadily since February. Household savings accumulated during the pandemic are largely gone by now, analysts also say. 

Household consumption declined (an unadjusted) 2% y/y in the first quarter, deepening the recession series after falling 1.1% y/y in Q4. Investment, on the other hand, held up well, growing 5.5% y/y, a pick up of 0.1pp versus the preceding quarter.

“The decline in consumption is a consequence of declining real purchasing power of income and occurred despite the increase of Poland’s population due to the influx of refugees from Ukraine,” PKO BP said in a comment on the GUS release. 

Overall consumption decreased 1.6% y/y, easing from a fall of 3.3% in the preceding three months, GUS data also showed.

Weakening consumption and a fall in gross accumulation led to a 5.2% y/y decline in domestic demand in January-March, a major slowdown against an expansion of 0.6% y/y in Q4.

Net exports’ positive contribution improved to 4.3pp in Q1 from +1.7pp in the preceding three months. 

Overall, the structure of economic growth in Q4 should be conducive to a “gradual recovery of economic growth,” Santander Bank Polska noted. 

“Private consumption is expected to rebound later this year. The inventory correction started later than anticipated and may continue further, but there is limited room for it to continue if we are correct about the upcoming turnaround in consumer demand,” Santander Bank Polska said.

“Investments may slow down, but they should still support economic growth this year, while the contribution of net exports is expected to weaken in the coming quarters,” it added. 

In unadjusted terms, Poland’s GDP fell 0.3% y/y in Q1 versus a gain of 2.3% y/y in October-December, GUS data also showed. 

Quarter on quarter, the economy expanded 3.8% after a decline of 2.3% q/q in Q4. 

The economy is currently forecast to grow 1% at best in 2023, as elevated inflation and low consumer and business confidence are expected to drag activity down, even if they are expected to improve incrementally throughout the remainder of the year.