The second estimate of GDP (which Statistics Poland calls "preliminary") confirmed what we have already known for two weeks. GDP grew by 3.2% yoy and 0.7% qoq (seasonally adjusted) in the first quarter of this year, which is similar to the growth rates recorded for most of 2024. So the glass is half empty – GDP did not accelerate at the beginning of the year. However, the structure of growth in the first quarter is the full part of the glass, as the details are surprisingly positive.

GDP growth and its structure (% yoy)

Source: Statistics Poland, Macrobond, Pekao Research

Firstly, private consumption grew by 2.4% yoy, slightly faster than our forecasts and weaker than in the previous quarter (3.5% yoy). The high base from the previous year and the weakness of retail sales in the first quarter contributed to this result. In our opinion, the timing of Easter should not be blamed for this, the consumption of goods was simply weak in the first quarter. To this we can add a low growth in public consumption (2% yoy) – such growth rates will be the norm in the near future due to passive fiscal consolidation.

Secondly, exports increased by 1.1% yoy, slightly below our assumptions, but close to what we have already seen in the monthly data. The weakness of foreign demand (mainly from European trading partners) remains the main factor limiting export growth.

Thirdly, and most importantly, investments increased by as much as 6.3% yoy, above our estimates based on monthly data (1.1% yoy) and assumptions from the beginning of the year (5% yoy). With the stagnation of construction production, a decline in investments by non-financial corporations and a slight increase in the outlays of local government units, such a result seemed impossible. We do not yet know the structure of investments in the first quarter, but the mathematics is inexorable here – a jump in investments in machinery and equipment or means of transport must have been responsible for their growth. Deliveries of military equipment are an obvious candidate, but we do not have enough useful knowledge about their distribution over time after quarters.

Increase in investments (various measures, % yoy)

Source: Statistics Poland, Macrobond, Pekao Research

Finally, the build-up of inventories in the first quarter boosted GDP growth (+2.4 percentage points), but on a slightly smaller scale than we had assumed.

There are several lessons to be learned from today's GDP reading, but they are conditional. We are not sure whether this good reading of investments will not be revised downwards in the future. The volatility of estimates of GDP components (especially investment) is greater than that of GDP itself, and we cannot rule out that taking into account full public sector finances will change the investment picture as it previously invalidated the first positive investment estimates for 2024. What's more, the result of construction has historically been a good predictor of future revisions of investments, so we would recommend caution. However, assuming that this result is maintained, then: we are returning to the previously assumed path of rapid investment growth in 2025, our forecast (8.6% on average annually) seems unthreatened in the light of these data, and the arguments for high investment growth remain valid.

The second conclusion concerns private consumption, which remains constrained by the dynamics of disposable income and average consumer sentiment. The last point is more fundamental. The combined contribution of investment and private consumption amounted to 2.4 percentage points in the first quarter (and an average of 1.6 percentage points since the beginning of 2024). Historically, with such a contribution of these two categories, Poland could grow by 2 or 4% y/y, and the difference was usually determined by the increase in exports. Consumption and investment are import-intensive, and growth driven by these two components alone is more likely to run afoul of limitations. Therefore, it seems that the Achilles' heel of the Polish economy are the problems of its trading partners.

Contribution of consumption and investment to GDP growth (% yoy)

Source: The axes have been cropped to show the normal range of GDP fluctuations

Source: Statistics Poland, Macrobond, Pekao Research