CE Watch: Q1 GDP exceeds expectations
Today's Q1 GDP releases showed that while the recession in Hungary continued at the start of 2023, it was less pronounced than expected. Meanwhile, in Poland, the result surprised even more to the upside showing a technical recession has been avoided after all.
Hungary: Better than expected but still in recession
Hungary's preliminary Q1 GDP showed a 0.2% quarterly contraction, which is milder than what the market (0.6-0.7%) and we expected (0.3%), so for us, it does not change the overall picture. With Q1, the technical recession stretched to three quarters as GDP started to contract in H2 2022. To put the current data in a mixed light, last year's Q3 data was revised down from -0.7% to -0.8% and Q4 from -0.4% to -0.6%. Adjusted for seasonal and calendar effects, annual GDP was -1.1% and unadjusted -0.9%, as was the consensus forecast. Without giving details, the statistical office said that the decline was mainly due to weak output in the industry, which was not offset by a good performance in services and agriculture. The disappointing industrial performance is not a surprise, but services were more resilient than expected, implying that the contraction in real disposable income did not hit as hard. Looking ahead, the key question is whether services and foreign trade can resist weak domestic and external demand. Our base case is that it most likely will, although we still maintain our full-year GDP expectation of 0% this year.
Poland: Recession avoided amid bumpy qoq GDP path
Despite the very weak monthly data published for Q1 in Poland, the GDP result released today showed a surprisingly high increase on a qoq basis by as much as 3.9% qoq. Due to that, and despite the high base from 2022 the yoy GDP dynamic was merely at -0.2%. The quarterly patterns show a bumpy path continues following declines in Q2 and Q4 last year while a technical recession in the form of two consecutive quarters of GDP decline has been again avoided.
The details of the reading are not known yet (release planned for May 31st) but it may be assumed the upside surprise did not come from a revival in consumer demand. Consumption has been in decline on an annual basis already in Q4'22 and it is unlikely the situation improved in Q1. With that in mind, other components might have surprised the upside: investment activity has already surprised throughout last year while net exports could have likely added significantly to growth, not to mention the highly uncertain stock contribution (which should recede after constantly adding to yoy GDP results in 2022). All in all the data was much higher than we expected which will boost also full 2023 result and adds upside risks to our 0.5% yoy forecast. Still, as we expect a muted recovery amid weak consumer demand and uncertain private investments we remain cautious for the next quarters. From a rates perspective today's data lower the probability of a rate cut this year supporting our call for such a move only in 2024.
Czechia: End of technical recession
The releases today conclude the first Q1 GDP results for the CE3 countries after earlier publication for Czechia showed the country is no longer in recession with a 0.1% qoq GDP increase in Q1. For details please see our note: Czechia Watch: End of technical recession
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Dorota STRAUCH
Poland Dorota Strauch is leading economic research on Poland from the RBI Branch located in Warsaw. She began working in Polish RBI network bank in 2010. In 2017 she became the Head of Polish Research team. Having a master’s degree in Financial Markets and Banking she deepened her knowledge by becoming the CFA charterholder in 2016. In the following years she has been focusing on improving data analysis skills with the use of Python programming language. Apart from current economic developments in Poland and the CEE region she is particularly interested in the impact of new technologies on the economy, politics and society.
Gergely PÁLFFY
Hungary Gergely Pálffy holds a bachelor's degree in economics from the International Business School Budapest and Oxford Brookes University (2005-2011). Prior to Raiffeisen, he worked for other financial institutions as a commodity, FX, and stock market analyst. He also dealt with company valuations, IPOs, and corporate bonds. During his studies, he spent his internship at Raiffeisen (2008-2009), but as a full-time employee he has been representing the Hungarian research department since 2015. Since then, Gergely has been covering the Hungarian economic environment, monetary policy and the interbank market. In his free time, he enjoys reading, spending time outdoors and cycling with his family.
FX markets have moved closer to a commonly shared scenario and in the absence of additional volatility shocks, exchange rates have stabilized after a dynamic first quarter. On global markets, this scenario mirrors central banks which are closing in on their terminal rate levels, rate cuts though not imminent, core inflation stabilizing, and economic momentum speaking for a soft rather than hard landing. For EUR/USD this implies sideways at 1.10. In CEE the appreciation of CE-3 came to a halt with the Polish złoty catching up to its peers at the very last minute. The Czech koruna had to shed some feathers after sentiment grew overly optimistic. With CNB and Fed meetings today and ECB tomorrow, FX markets are on the lookout for impulses which can challenge the current status quo. This issues features:
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Markets have stabilized after risks of spillovers to the broader banking sector faded. The focus is shifting back to the usual suspects but an aftertaste of more dovish central banks stuck. In contrast to rate markets, FX market volatility has receded to previous levels. The euro has emerged stronger and also currencies of Central Europe regained their highs. Not so for the Polish zloty which was not impressed by global volatility already in the first place. Interestingly, the Russian rouble depreciated in recent days, despite global energy prices surging after OPEC+ announced deeper production cuts. This issues features:
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With energy prices receding and no shortages of inputs, the risk of a severe downturn has reduced. Still, growth will likely be modest in 2023. Financial market stress added to the headwinds. Inflation will remain high despite disinflation, but government interventions affect it. |