Economic Analysis

In today's Eyeopener:

• Equities stable awaiting US fiscal package news
• EURPLN slightly up amid high Covid-19 infections
• Polish 10Y bond gains, IRS up
• Today in Poland unemployment rate, in Europe flash PMIs

October ends in red in Poland. The government has just extended the pandemic restrictions, covering the entire country with rules applying earlier to red zones, and additionally forbidding eat-in services in bars and restaurants, shutting down sanatoriums, and advising senior citizens to stay home. The Prime Minister admitted for the first time in public that if the pandemic does not decelerate, more drastic steps may be needed, including “deep lockdown”. 
We estimate that if today’s additional restrictions are kept until the end of the year, it would reduce GDP forecast for 4Q by additional 1pp (the share of gastronomy in gross value added is around 1%, while its share in total employment is twice as high). 
 

September retail sales accelerated to 2.5% y/y from 0.5% y/y in August (we: 0.3% y/y, market: 2.4%). In October and in the upcoming months retail sales are likely to be negatively hit by wider range of COVID-19 restrictions and in our view it is likely to move back into negative territory. Construction output fell in September 9.8% y/y, less than expected (we: -15%, consensus: -11.2% y/y), joining the streak of positively surprising September’s data. We think that the activity in the construction sector will remain subdued in the next few quarters and will be recovering at much slower pace than in manufacturing.

The third quarter that has just ended saw a vigorous rebound of economic activity, after a deep plunge in Q2, and as a result we have just moved our GDP estimate for Q3 up, to -3% y/y. However, the outlook for the upcoming quarters does not look any brighter, as the quickly rising tide of new Covid-19 cases threatens to slow the pace of economic recovery. Even if the government is quite reluctant to impose far-reaching restrictions or lockdowns, business activity may suffer from reduced output capacity, as the number of people in quarantine grows quickly, and/or from lower personal spending, as the second wave of pandemic may weigh on consumer confidence. That said, we do not expect to see the second wave of recession ahead, but rather a slowdown of the recovery process, especially in Q4. Overall, our forecasts for 2020 and 2021 remain roughly unchanged, at -3% and +4.8% respectively. (...)

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.