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Erste Group: Annual GDP figure came in at 2.0%

January 29, 2013
GDP growth in 2012 was 2.0%, in line with market consensus.

The economy visibly slowed down in 2012. After a very dynamic first quarter, the second half of the year was disappointing.

Polish GDP growth for 2012 came in at 2.0% y/y, in line with market expectations. This is still a preliminary figure, although we do not expect any substantial revisions. Domestic demand grew only meagerly, by 0.1% y/y. Household consumption and fixed investment growth were slightly positive (0.5% y/y and 0.6% y/y, respectively). While consumption growth is decelerating due to weak labor market conditions and limited spending, the investment dynamics surprised positively in the light of recent weak data releases.

Net exports made the biggest contribution to the growth figure; consumption had a slight positive impact, while investment remained neutral.

Has the economy reached bottom yet? We expect the economy to remain weak throughout this quarter and that growth will be close to zero reaching the bottom of the slowdown. Economic growth will then slowly improve over the course of 2H13. Growth of final consumption will remain low, with households cautious about their spending decisions, as real wages have not been growing. However, we expect a slight positive impact from the investment side. This will start to improve in the second half of the year, once the newly set-up Polish Investment Fund finances its first projects and market sentiment improves enough to expand private investments.

How much space is left for monetary easing? The MPC has so far lowered the policy rate by 75bp in three consecutive steps. We expect that the council will deliver another 25bp cut in February, as the economy remains weak and the inflation rate has dropped below the target of 2.5%. After that, we will most probably see the announced pause in the cycle.