PL: Last year’s economic growth positively surprises, implying strong fourth quarter

Today, the Polish Statistical Office released the GDP growth figure for the whole of 2024, revealing an economic expansion of 2.9%. This growth slightly exceeds both the latest consensus and our expectations, which were both set at 2.8%. The annual growth figure suggests an economic expansion of 3.3-3.6% in annual terms. For 2025, we anticipate a modest improvement, with the economy projected to grow by approximately 3.3%.

The economy appeared to decelerate slightly towards the end of the year, as evidenced by predominantly disappointing retail and industrial data since June. In the second half of the year, retail sales fell short of expectations in four out of six months, while industrial performance underperformed in five out of six months. However, the implied Q4 economic performance contrasts with the retail and industrial figures, being approximately 0.5 percentage points above our initial expectations. Overall, Poland's GDP growth for 2024 is expected to be among the highest in the EU, even amid challenging external conditions and a tendency among Polish households to save a bit more instead of spending. Government expenditure significantly contributed to last years growth, with an average annual growth rate of 8.4% from Q1 to Q3. Investment growth decelerated less than anticipated, even though 2023 provided a high base due to the final fund withdrawals from the 2014-2020 EU funding period. Flash estimates for fourth-quarter growth will be available in mid-February, with a detailed breakdown released at the end of the month.

For 2025, we expect a robust revival of investment and relatively strong consumption growth. Investment will be driven by the Recovery and Resilience Facility funds, from which Poland has already received approximately 21 billion (in grants and loans), with an additional 38 billion available. However, tight monetary policy could restrict lending availability. Household consumption will not be as strongly supported by real wage growth as in the previous year; however, with households more content with their rebuilt savings, they may decide to increase spending. The external environment, particularly in Germany, is expected to face further economic challenges in 2025, which will constrain exporters. Additionally, government expenditure growth will need to moderate due to large deficits.