Economic Analysis

In today's Eyeopener:

- Today April core CPI in Poland
- Polish GDP up 1.9% y/y in 1Q, April CPI inflation rise to 2.4% y/y confirmed
- European Commission revised Polish growth forecasts up, close to our estimates
- Lower inflation and poor retail sales in the US, slightly better eurozone industrial output
- Risk appetite supported the zloty, bond yield down after the US data

Next week will bring, among others, a preliminary estimate of the Polish economy's performance in 1Q24, full data on April inflation and the March balance of payments. In our view, GDP accelerated in 1Q24 to 1.8% y/y (in line with the market consensus) from 1.0% in 4Q23 is on track to grow by around 3% in the entire year. Although March's economic activity data came in below market expectations, we do not see this as sufficient reason to undermine the economic rebound in 1Q24. (...)

GDP growth in Poland in 1Q24 accelerated to 1.9% y/y, according to flash estimate, from 1.0% y/y in 4Q23. The reading was a notch above the market consensus and our forecast, both at 1.8% y/y. Seasonally adjusted GDP picked up by 0.4% q/q (vs 0.6% market consensus), which does not look impressive. The details will be out in late May. We treat the result as a confirmation of our long-expected scenario of gradual economic reacceleration in 2024.
The statistical office confirmed a rebound in CPI inflation in April to 2.4% y/y from 2.0% y/y in March. The m/m growth was revised up to 1.1% from 1.0%. The acceleration in annual inflation was mainly due to the reinstatement of VAT on food, the other major factor was the fuel price rebound. Upon seeing the CPI details, we upkeep our view that core inflation eased to 4.1% y/y in April from 4.6% y/y in March. We expect CPI inflation to keep growing in the coming months and reach c.5.5% y/y by the end of the year.

While the decline in inflation in major economies has slowed and the market expects fewer rate cuts in the US and the euro area, inflation in Poland once again surprised on the downside and fell to 1.9% y/y, below target for the first time since May 2019. The next few months are likely to bring higher inflation readings, while core inflation is likely to remain elevated, in the 4-5% range until the end of 2025. Real wage growth accelerated to nearly 10% in February, the strongest since the late 90s, and nominal wage growth will remain in double digits in our view. This will contribute to the acceleration of consumption, which will be the main driver of growth. Activity data for February showed positive surprises in sales and industrial production. The prospect of a recovery in GDP (we expect 3% this year) and continued elevated core inflation and will make it likely that the MPC will not change rates until mid-2025.

In September's Rates and FX Outlook:
 

• Poland’s GDP growth failed to accelerate in 2Q16, with investments surprising negatively (-4.9% y/y), and we think that the second half of the year will see no significant improvement in economic growth. Although private consumption is likely to gain strength in the coming quarters, supported by solid labour income and the new child subsidies, it may take time until investments recover, and the positive impact of net exports will be hard to maintain (export growth may decelerate and imports accelerate). We expect a more significant investment pick-up next year, but by then the impact of the 500+ child benefit programme on consumption will be dissipating. Therefore, we forecast that GDP will grow 3.1% in 2016 and 2.9% in 2017.