Economic Analysis

In today's Eyeopener:

• Today, core inflation for November, abroad US employment and European PMIs
• CPI inflation in November revised from 2.4% to 2.5% y/y
• Current account surplus in October higher than expected
• Budget deficit after November exceeded forecast 
• Zloty still strong, bond yields virtually unchanged

After a data-poor period, next week will bring a strong dataset. On Monday, we will see November inflation data (preliminary reading: 2.4% y/y), which will allow for a more accurate assessment of the source of the declining price trajectory. NBP will also release October balance of payments. On Tuesday, we will see core inflation in November, on Wednesday the results of the December consumer sentiment survey. Then, on Thursday, the November's wages, employment, production, and its prices. Industrial production may record a slightly worse result than in October (2.7% instead of 3.2% y/y), similarly to construction and assembly production (2.5% vs. 4.1% y/y). In the US, delayed economic data for October and some new data for November will be released, in particular: on Tuesday, we should see the non-farm payrolls, unemployment rate, and retail sales report, on Thursday, inflation data, and on Friday, the Michigan Consumer Confidence Index. (...)

 

November CPI inflation was revised up to 2.5% y/y from 2.4% y/y. In our view, this change resulted from a slight upward adjustment in core inflation estimates, though it was a minute change and, according to our calculations, the flash reading was already on the borderline between 2.4% y/y and 2.5% y/y. We estimate core inflation at 2.7% y/y. Service price inflation fell to 5.3% y/y from 5.6% y/y, while goods inflation declined to 1.4% y/y from 1.7% y/y.
We believe CPI inflation may edge up slightly in December, supporting the MPC in its “wait-and-see” stance, before falling towards 2% in the first half of 2026, which would give the Council an incentive to cut rates to 3.50%.

Recent positive data from the domestic economy have sparked a wave of optimism about the prospects for economic growth in Poland. For us, this optimism is nothing new. We wrote about the fact that the coming years would be marked by strong investment growth and that 2026 would be better than 2025 in terms of GDP growth before it became trendy. At the same time, it is worth bearing in mind that these will not be easy years, free from uncertainty, and that the acceleration in domestic growth will be moderate rather than spectacular. In our opinion, the increasingly popular slogan ‘GDP at four plus’ will materialise more likely in the form of nominal GDP level exceeding PLN 4 trillion, rather than in the form of average real GDP growth for the entire year above 4% (although this may not be far off) (...)

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.