May 31, 2017 / 10:01 AM / 2 years ago

UPDATE 1-Consumption powers Polish economy, investment recovers

    * Polish Q1 GDP growth confirmed at 4.0 pct y/y
    * Consumption rises at fastest pace in 8 years
    * Record low unemployment, new child benefit help consumers
    * Investment at -0.4 pct y/y vs -9.8 pct in Q4 2016

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    By Bartosz Chmielewski and Marcin Goettig
    WARSAW, May 31 (Reuters) - A strong rise in consumption
drove Poland's economic growth at an annual rate of 4 percent
three month of this year and a decline in investment that
weighed on economic expansion throughout 2016 all but ended.
    Official data confirmed on Wednesday that economic growth
accelerated to 4.0 percent year-on-year in the first quarter,
among the fastest rates in the European Union, compared with 2.5
percent in the three months to December.
    A breakdown of first-quarter growth published showed total
consumption added 3.2 percentage points to the annual growth
rate, while investment was neutral for growth.
    In seasonally-adjusted terms, the performance was even
stringer -- a rise of 4.2 percent year-on-year and 1.1 percent
    The main driver was clear. Private consumption rose by 4.7
percent year-on-year, its fastest pace in eight years, supported
by a record low level of unemployment and a new child benefit
launched by the government last year.
    Adding to the mix, investment, seen by analysts as crucial
to the growth outlook, fell by 0.4 percent year-on-year compared
with a decline of 9.8 percent in the previous quarter. In
seasonally-adjusted terms, investment rose by 1.0 percent.
    "Investment is returning to the growth path," bank PKO BP
said in a note. "The dynamics of investment should gradually
rise over the remaining part of the year".    
    The decline in Polish investment that lasted throughout 2016
was partly caused by a slowdown in the inflow of European Union
funds. Some economists have said higher policy uncertainty under
the Law and Justice party government also hurt investment.
    EU officials have expressed concern that some of the party's
policies violate the bloc's rule of law principles, notably in
the area of media and the judiciary. 
    A Polish deputy economy minister said earlier this year that
the economy would receive a "very strong" impulse from EU funds
in the second or third quarter of this year.             
    Economists agreed that the momentum would remain.
    "Despite negative statistical base effects, economic growth
in the second quarter should be maintained at 4 percent and this
will take place thanks to investment demand," economists at
mBank said in a note.
    The GDP data is neutral for the monetary policy outlook,
economists said, given an expected stabilisation in inflation
and signals from the rate-setting Monetary Policy Council (MPC)
that rates will remain unchanged in the coming quarters.
    A record interest rate low of 1.5 percent has been in place
since a 50 basis point cut in March 2015.
    "The GDP data will not make an impression on the MPC because
it does not show a willingness to quickly change monetary
policy," mBank said. "We remain in the orbit of a wait-and-see
stance with a quickly expanding economy."

 (Editing by Jeremy Gaunt)
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