Poland’s gross domestic product growth slows in third quarter

Poland’s gross domestic product (GDP) growth slowed in the third quarter, statistics office data showed, missing analysts’ estimates as weaker growth in construction and industry offset continuous strong domestic consumer demand.

Central Europe’s largest economy has been one of the continent’s fastest growing in recent years, with rising wages and expansive government social spending driving a boom in consumer spending, but economists expect growth to slow.

GDP grew 3.9% year-on-year in the third quarter, compared with a revised 4.6% rise in the previous quarter, a first estimate from the statistics office showed. Analysts polled by Reuters had expected growth of 4.1% year-on-year.

“We estimate that in two key segments of the national economy, in industry and construction, the rate of real gross value-added growth continued to slow down in the third quarter,” said Anita Perzyna, deputy director of the national accounts department at the statistics office.

“In the case of industry, the growth rate of value-added will be slightly lower than the overall GDP growth.”

Analysts said the GDP reading would not affect the Polish central bank’s (NBP) stance on interest rates, which have been at a record low of 1.5% since 2015. Central bank governor Adam Glapinski has repeatedly said he expects rates to remain on hold until his term ends in 2022.

“The preliminary GDP estimateis slightly lower than the NBP forecast included in the November projection at 4.0% year-on-year. However, it certainly does not change the current MPC attitude to monetary policy,” Monika Kurtek, chief economist at Bank Pocztowy, said in a note.

Inflation in Poland was confirmed at 2.5% year-on-year in October, according to a final reading from the statistics office published on Thursday.

“The decline of headline inflation from September’s 2.6% y/y should be temporary and by the end of the year it should rebound to almost 3% y/y,” Santander Bank Polska analysts said in a note.

The statistics office said that in the third quarter seasonally-adjusted GDP rose by 1.3% quarter-on-quarter, versus a 0.8% in the previous quarter.

Poland is betting on electric batteries to turbocharge its economy, but its dependency on coal could challenge its strategy as the EU seeks to champion European manufacturers that promote clean energy.

Eastern Europe’s biggest economy is already a centre for auto parts makers such as Michelin, Valeo and Denso. As carmakers shift to electric vehicles, spurred by efforts to combat climate change, Warsaw is counting on lithium battery production to carve out a niche in the auto industry’s ‘green energy’ generation manufacturing.

In the first quarter of 2019, Poland was the EU’s biggest exporter of lithium ion batteries - with sales of 361 million euros ($400 million) - after luring Asian battery makers led by South Korea’s LG Chem.

LG Chem’s plant near the city of Wroclaw, which opened last year, is Europe’s largest electric vehicle battery factory and is now undergoing a 4.4 billion zloty ($1.1 billion) expansion.

Polish bank Pekao estimates the auto industry last year contributed 145 billion zlotys ($38 billion) to Poland’s $542 billion economy, which is set to grow by more than 4% this year.

But the country’s twin dependence on Asian investors and coal energy poses risks longer-term as it collides with the European Commission’s ambitions to develop home-grown battery makers to take on currently dominant Asian rivals.

“To prevent a technological dependence on our competitors ... Europe has to move fast in the global race,” the European Commission, which launched the European Battery Alliance in 2017 to bring players together and build a battery industry, says in a report on its strategy.

Europe’s battery market could be worth 250 billion euros by 2025, the report says, and the Commission’s objectives include supporting “the sustainability of an EU battery cell manufacturing industry with the lowest environmental footprint possible.” Poland generates 80% of its power from heavily polluting coal. While the ruling nationalist Law and Justice party (PiS) has pledged investment in photovoltaic, offshore wind and nuclear power to cut emissions, it still expects half of the country’s electricity to be generated from coal by 2050.

Poland led eastern EU states in blocking an EU move to commit the bloc to net zero emissions by 2050, arguing that post-communist states need more time to make the transition.

“Poland needs to solve this issue because electric battery production should be more or less carbon neutral in the long term,” said Stefan Bratzel of the Center of Automotive Management in Germany.

Reuters