Poland's economic growth slowed in the first quarter, hit by the first decline in investment in over two years and a negative contribution from foreign trade, statistics office data showed on Tuesday. The breakdown of first-quarter gross domestic product (GDP) data, published for the first time, showed investment fell by 1.8 percent year-on-year compared to 4.4 percent growth the previous quarter.
The statistics office also confirmed an earlier flash estimate showing the economy expanded by 3.0 percent year-on-year and shrunk by 0.1 percent quarter-on-quarter in January-March. Analysts said the decline in investment - the first since the second half of 2013 - was mainly a result of a sharp slowdown in public infrastructure projects pending fresh European Union funds. Investment accounts for about 20 percent of Poland's GDP.
"The lower reading was caused by, first, a sharp deceleration of investments due to lower public investments in the transition between two EU budget perspectives," said Jakub Rybacki, economist at ING Bank Slaski. A major beneficiary of EU funds, Poland accelerated its take-up of them in the last quarter of 2015 as it was the last opportunity to draw on cash from the 2007-2013 EU perspective.
This year, Poland was not ready yet to significantly benefit from the new financial aid. Contributions to growth showed investment shaved off 0.2 percent from the annual economic growth rate, with foreign trade subtracting an additional 0.9 percent. That reflected a rise in private consumption, which usually boosts imports. Public consumption growth slowed to 4.4 percent year-on-year from 8.7 percent in October-December last year, while private consumption accelerated to 3.2 percent from 3.0 percent.
The growth of total consumption, which accounts for nearly 80 percent of Poland's $455 billion economy, slowed to an annual 3.4 percent in the first quarter from 4.5 percent in the previous quarter. Analysts said there was little scope for a major acceleration in growth in the next quarter. "The investment trajectory should still remain subdued, while the child benefit impact would be only visible partially," ING's Rybacki said. The government of the eurosceptic Law and Justice (PiS) launched an new child benefit program in April, worth approximately 1 percent of GDP in 2016.
"On the other hand we remain optimistic about the second half of the year. Consumption should accelerate strongly in the third quarter as child benefit would fully impact the economy," Rybacki said. Despite the slowdown in growth, analysts say the central bank's Monetary Policy Council (MPC) is likely to stick to its policy of keeping interest rates stable. The main rate has remained at the record low of 1.5 percent since March last year. "The data is unlikely to change anything in the wait-and-see strategy of the monetary authorities ... given that the weakness in investment activity is more due to exogenous factors," said Piotr Kalisz, economist at Citi Handlowy bank.