Economy records fastest expansion since Q4 2022 in the first quarter

According to a second estimate, GDP growth accelerated to 2.0% year on year in the first quarter, from 1.0% in the fourth quarter of last year. Q1's reading marked the fastest expansion since Q4 2022. On a seasonally adjusted quarter-on-quarter basis, economic activity rose 0.5% in Q1, compared to the previous quarter's flat reading.

Private consumption growth rose 4.6% yoy in Q1 compared to the flat reading recorded in Q4. Public spending grew at the fastest pace on record, expanding 10.9% (Q4 2023: +7.5% yoy). Less positively, fixed investment swung into contraction, declining 1.8% in Q1 (Q4 2023: +15.8% yoy). On the external front, exports of goods and services increased 0.5% on an annual basis in the first quarter, which was below the fourth quarter's 3.6% expansion. Meanwhile, imports of goods and services contracted at a softer rate of 0.1% in Q1 (Q4 2023: -0.5% yoy), marking the best reading since Q4 2022.

Looking ahead, GDP growth is forecast to accelerate sharply during the remainder of the year, which will bring full-year growth above 2023’s near-stagnant figure and closer to the prior 10-year average of 3.8%. Domestic demand is set to stage a recovery this year, fueled by stronger public spending growth and rebounding private consumption, which will outweigh weaker momentum in fixed investment. Meanwhile, a sluggish recovery among key trading partners will dampen the expansion in exports. A stronger-than-expected EU economy is an upside risk.

UniCredit analysts Dan Bucsa and Gökce Celik commented on the outlook: “We forecast that GDP will grow by 3.5% this year. Private consumption is recovering, with higher wages and resilient employment, while consumer optimism is improving, as shown by the forward looking components of sentiment indices. Public investment could recover in 2H24 and 2025 as EU transfers from the 2021-27 budget finally pick up. However, [Recovery and Resilience Facility] transfers might be postponed to 2025 as the necessary reforms are likely to be stifled by Mr. Duda and the Constitutional Tribunal.” Erste Group analyst Jakub Cery said: “We maintain our annual growth forecast at 2.8% for 2024, predicated on the sustained influence of household and public expenditure as the primary drivers of economic growth. The trade balance is projected to remain stable, while the negative impact of inventories is likely to decrease further. Investment activity is forecasted to rebound in the latter half of the year, with the principal utilization of the [Recovery and Resilience Facility] commencing in 2025.”

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