With eyes on the rear-view mirror

Hence, using the third quarter's flash estimate for economic growth to decipher the trends could be similar to an attempt of driving forward with one's eyes glued to the rear-view mirror. The highlights are already different now: for example, the effectiveness of the new gathering restrictions, the costs of energy and materials, production and supply chain disruptions.

The flash estimate published by the Central Statistical Bureau shows a rather modest increase in gross domestic product (GDP) in the third quarter.

The most significant contributor to a 0.3% and 4.7% GDP growth in quarterly and annual terms respectively (seasonally and calendar adjusted data) most likely was an improvement in availability of services. Individual short-term data, however, were suggesting that growth could have been stronger. In July–August, the average increases over the second quarter in manufacturing and in retail trade were 0.6% and 0.7% respectively (seasonally adjusted data), larger than the quarterly GDP growth. Although the quarterly growth of the retail trade decelerated, it was reasonable to believe that, with the lifting of some restrictions, households would start spending more on the services that had been unavailable for several months. Gradual stabilisation of household deposits, pointing to higher spending, was also suggesting further growth in the third quarter. Deposits increased by 1.5% quarter-on-quarter (unadjusted data), after ranging from 4% to 5.5% in the previous quarters. According to the Treasury's Monthly Reports on General Government Consolidated Budget Execution, in the third quarter, VAT revenue was 15% higher than in the third quarter of the previous year.

The monthly data available for the transport and tourism sectors suggest that they have most likely continued "swimming underwater", meaning that they have not managed to surface at the pre-pandemic levels despite a slight improvement, for example, in transportation by air or accommodation figures. The reimposed gathering restrictions are equally affecting both sectors that had adjusted to working remotely more easily and were already swimming quite confidently with the head above the water (for example, trade) and sectors that cannot function well without face-to-face contacts, meaning that getting back to their traditional volume of output will take even longer (for example, recreation, culture).

Wiping sweat off the forehead, the overstrained health care sector continues to struggle, and its annual growth overall will most likely be hard to describe without using some sort of an oxymoron. While it would be only natural to welcome positive growth, it is not that straightforward when you think what's behind it: a lasting battle with the infection, impaired quality of life and exhaustion of both patients and the medics. A similar rationale for finding joy in the fact that the sector's output is not growing significantly (or the content of growth is changing considerably) also should gradually be applied regarding energy. The sector will be increasingly affected by the implementation of the Green Deal, including energy efficiency improvements. There are, indeed, some limits to the use of GDP data to measure growth and development.

According to the confidence surveys conducted by the European Commission in October, consumer confidence has improved despite the hiking energy prices as well as the reintroduction of gathering restrictions.

At the same time, the same renewed gathering restrictions could much better explain why retail traders have become more pessimistic. Construction and industry increasingly point to the role of labour shortages as a growth limiting factor. Combined with the growing costs, in some cases, this is already enough for companies to give up on construction projects. At the same time, the current lockdown does not extend too far into the fourth quarter, and the successful adapting of the economic agents and available government support could prevent the economy from falling towards the end of the year. More detailed data on GDP by sector and expenditure components will be available in a month, and this includes a possibility of also seeing a revised growth figure.