November 30, 2017 / 11:01 AM / a year ago

UPDATE 1-Consumption powers Polish economy, investment slowly recovers

    * Polish Q3 GDP growth at 4.9 pct y/y, highest since Q4 2011
    * Investment up 3.3 pct, following sharp decline in 2016
    * Data signal firms still holding back investment - analyst
    * Record low unemployment, new child benefit help consumers

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    By Bartosz Chmielewski and Marcin Goettig
    WARSAW, Nov 30 (Reuters) - A strong rise in consumption
together with rising exports and a recovery in investment
propelled Poland's economic growth to nearly five percent in the
third quarter, its fastest pace in five and a half years,
official data showed on Thursday.
    Economic growth accelerated to 4.9 percent year-on-year in
the third quarter, above an earlier estimate of 4.7 percent and
among the fastest rates in the European Union, compared with 4.0
percent in the three months to June.
    A breakdown of third-quarter growth published for the first
time on Thursday showed total consumption added 3.2 percentage
points to the annual growth rate, foreign trade 1.1 percentage
point and investment added 0.6 point.
    In seasonally-adjusted terms, the economy grew by 5.2
percent year-on-year in the third quarter and 1.2 percent
    "This is a very good reading, the best in years," said
Urszula Krynska, economist at the Warsaw-based Bank Millennium. 
    Private consumption rose by 4.8 percent year-on-year,
supported by a record low level of unemployment and wages rising
at their fastest pace in years.             
    Investment, seen by analysts as crucial to the growth
outlook, rose by 3.3 percent year-on-year following a decline of
nearly eight percent in 2016, partly due to a slowdown in the
inflow of development aid that Poland receives from the EU. 
    "Investment has disappointed ... as firms are still holding
it back," Krynska said. "Investment will accelerate thanks to
the large inflow of EU funds," Millennium's Krynska said.
    Central bank surveys have shown that a rise in
unpredictability about the future tax burden under the
right-wing Law and Justice (PiS) party government was currently
the main reason discouraging private investments, following by
rising labour costs.
    The share of investment in Poland's GDP - at 17.0 percent in
the third quarter - was close to its lowest in two decades.
    The PiS - in power since late 2015 - has launched a new,
generous child benefit and reversed a cut in the retirement age.
The party also introduced a new bank tax and increased value
added tax collection, slapping more reporting requirements on
firms and raising penalties for tax avoidance.
    Some analysts said the Polish government's conflicts with
the EU could also be discouraging firms from investing more.
    The European Commission in November voiced fresh concerns
over Poland's plans to reform its judicial system and EU
lawmakers voted to demand that the 28 member states punish
Warsaw by triggering a procedure that could lead to a cut in the
EU aid Poland receives.             

 (Reporting by Marcin Goettig and Bartosz Chmielewski; Writing
by Marcin Goettig, Editing by William Maclean)
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