Economic news:

• ECONOMIC GROWTH: The GDP growth in Poland in 4Q2024 was 3.2% yoy – confirmed StatOffice in the second reading. It was driven mostly by private consumption, but investment had a small positive contribution as well (contrary to our initial expectations). Net export, on the other hand, subtracted 1,3pp from GDP growth. You can read more about this topic later in this publication.
• TRADE: Retail sales surged to 4.8% yoy in January, beating consensus and our forecast by a wide margin. The surge was broad-based and only partially attributable to transitory factors (such as a tougher flu season driving pharmaceutics sales). In particular, there has been a major acceleration in durables sales. A more detailed comment can be found here.
• SENTIMEMT: In February, Polish manufacturing PMI rose above 50 pts for the first time in almost three years, driven by improvements in orders and production as well as a slight uptick in labor demand. This print should of course be seen in a broader context of a global manufacturing recovery, better sentiment shown be other surveys (for instance, the EC’s total economy sentiment indicator rose to 6-month high) acceleration in economic activity in Poland. Thus, we don’t see it as a breakthrough, but rather a piece of a bigger puzzle.
• UNEMPLOYMENT: The unemployment rate in January stood at 5.4%, compared to 5.1% in the previous month, according to the StatOffice. The reading is in line with consensus forecasts, and the increase in the unemployment rate is typical for January due to seasonal factors. Later in the year, the unemployment rate is expected to return to around 5%. Meanwhile, the unemployment rate measured by the Labour Force Survey (LFS) stood at 2.8% in Q4 2024, compared to 2.9% in the previous quarter.
• MONEY & CREDIT: Money supply rose by 9,4% yoy in January, the NBP reported. Looking at money and credit data more broadly, it is devoid of major changes in trends. Deposit growth still outstrips credit growth and loan demand seems to be elevated in several sectors only. In particular, corporate demand rebounded in 2024 and continued to accelerate at the turn of the year, albeit current growth rates are still modest. In household lending there is a major cleavage between mortgage loans and other consumer loans. New production of the former stands at PLN 6 bn / month – a historically low number, when adjusted by property prices. The latter surged to all-time highs in real terms, likely due to consumption smoothing.

Steady as she goes: Polish economy regained momentum in Q4

Last Thursday, the Central Statistical Office (GUS) released preliminary data on Poland's GDP for the fourth quarter. However, the term "preliminary" might be misleading, as this is already the third release of the same information, given that full-year data allows for a fairly precise calculation of Q4 and Statistics Poland published the flash estimate two weeks earlier. For clarity, we provide the exact figures, but we won’t go into further analysis—we have little to add beyond last month’s commentary. And so, GDP grew by 3.2% year-on-year, private consumption by 3.5%, investment by 1.3%, inventories contributed 1.9 percentage points, while net exports subtracted 1.3 percentage points. There are other relevant conclusions that can be drawn from Q4 GDP data.

First, nominal GDP is accelerating. At the beginning of 2024 it grew by a modest 4.9% yoy, but accelerated to 7.8% yoy in Q4, which is already above the norm. Domestic demand has been rising even faster, by 9.5% yoy in the second half of the year. This explains why tax revenues held fairly well in 2024 and why current fiscal deficits are driven by the expenditure side.

Nominal GDP growth and domestic demand in Poland (% yoy)

Source: StatOffice, Pekao Research

This acceleration is naturally linked to rising inflation. However, there’s no need to focus solely on CPI or PPI inflation—the GDP deflator (which reflects the weighted prices of all goods and services produced in the economy) increased by 4.6% year-on-year in Q4, while the deflator for consumer goods alone rose by 5.1%—slightly faster than CPI.

Last year, we meticulously tracked CPI fluctuations, but quarterly data from national accounts allow us to step back from the finer details of inflation trends. The key takeaway is clear: by historical standards, inflation rebounded very quickly in 2024. Exactly one year passed between the trough in real GDP (2Q2023) and the low point of price growth (2Q2024). For comparison, in the previous cycle, the lowest point occurred around 2012/13, and it took three years for inflation to bottom out.

While Poland wasn’t a prime example of persistent deflation in the previous decade, the contrast between inflation behavior then and now underscores a broader observation that we find compelling: in the past decade, the inflation target was a ceiling; in this decade, it’s a floor.

Various measures of inflation in Poland (% yoy)

Source: StatOffice, Pekao Research

The fourth quarter was solid for investments (+1.3% yoy), and the same can be said for the entire year of 2024. Our forecast of a decline in investments for the year did not materialize, with an error margin of about 2 percentage points. The investment cycle, driven by EU fund expenditures, is still ongoing, but this time it was weaker than ever. According to seasonally adjusted data, investments declined only once—by 2.3% qoq in the first quarter of last year. As a result, this is the shallowest investment cycle in the past 20 years. There is a good chance that a return to the last investment peak will take just four quarters, rather than three years as it did previously.

Comparison of investment cycles (cumulative % change in investment from the peak)

Source: Eurostat, Pekao Research

Financial market update

A global flight from risk assets is not an environment favorable to Polish assets, even though they have proven to be quite resilient to geopolitical factors in recent months. On Friday, the Polish zloty depreciated sharply, briefly approaching 4.20 against the euro (EUR/PLN), and this happened even before the dispute in the White House between D. Trump and V. Zelensky.

There is no sign that the coming week will bring any easing in international relations, so the most likely scenario for the PLN is continued weakening, while for government bonds – rising yields. Although markets have started pricing in more interest rate cuts in Poland, even if there are indeed more (our forecast remains at 100 basis points in 2025), they will not begin quickly. This means that the decline in POLGB yields should slow down and may even reverse as capital flees from markets in our region. However, this month is shaping up to be a bit slower one in terms of supply and the Ministry of Finance has already fulfilled 50% of its gross financing needs for the year, allowing for bigger flexibility in the coming weeks.