Polish GDP expanded a seasonally adjusted 0.4% y/y in the fourth quarter (chart), easing from an expansion of 4.5% y/y in the preceding three months, the statistical office GUS said in a preliminary reading on February 28.

GUS revised its flash reading from mid-November upwards by 0.1pp but private consumption, the so-far key driver of growth, still weakened considerably. Inflation ate into wages’ real value and whatever savings households accumulated during the pandemic appears all but gone now, analysts say. 

“The drop in domestic household spending was so strong that it was not masked by the spending of refugees from Ukraine, whose influx increased Poland's population by about 3%-4%,” PKO BP said in a comment on the GUS release. 

Household consumption’s decline of (an unadjusted) 1.5% y/y in the fourth quarter, which came after an expansion of 0.9% y/y in Q3, was the biggest in the available data series, except for the pandemic-induced depression in 2020, analysts point out. 

Overall consumption decreased 1.5% y/y, again a reverse on the growth – feeble as it was – of 0.7% y/y in the preceding three months, GUS data also showed.

Weakening consumption and a decreased contribution from inventories suppressed growth in domestic demand to just 1.1% y/y in October-December, a slowdown against an expansion of 3.1% y/y in Q3.

Growth in domestic demand owed to a surprising pick-up in investment to 4.9% y/y in Q4 after a gain of 2% y/y in the preceding quarter.

“Faster growth in [investment] in Q4 is accounted for by higher public investment, which offset negative impacts of the slowdown in housing and business investment,” Jakub Borowski, chief economist of Credit Agricole Bank Polska said.

Net exports’ positive contribution improved to 0.9pp in Q4 from +0.6pp in the preceding three months. 

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

“Later in the year, however, we expect a gradual recovery in consumer demand and a deterioration in investment,” it added. 

Just when consumer demand will rebound is very unclear. “The outlook for consumption for the coming quarters looks bleak. We expect some improvement only at the end of 2023 thanks to falling inflation and the prospect of interest rate cuts,” PKO BP said. 

In unadjusted terms, Poland’s GDP expanded 2% y/y in Q4 versus a gain of 3.6% y/y in July-September, GUS data also showed. 

Quarter-on-quarter, the economy contracted 2.4% after a gain of 1% in Q3. 

Despite war raging just outside the border, Poland's GDP grew 4.9% in 2022 after expanding 6.8% in 2021.

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.