Economic Analysis

In today's Eyeopener

- Today January inflation in Poland
- 4Q25 GDP advanced by 4.0% y/y, in line with the consensus
- MPC’s Kotecki: cut by 25bp in March highly probable
- Minor changes on the FX market, Polish bonds gained markedly 

After January inflation, which fell by less than expected to 2.2% y/y, the coming week will bring the release of further domestic January data. On Thursday, figures for wages and employment in the enterprise sector, industrial and construction output, and PPI will be published. This may be a series of rather weak-looking indicators, especially when compared with the very strong December readings. Economic activity at the start of the year was significantly disrupted not only by calendar effects (one fewer working day than a year earlier) but also by an exceptionally harsh winter. We discuss the potential implications of winter conditions for the economy in a commentary published today (link). As a result, we expect (in line with market consensus) a slowdown in the growth of output and wages. Such readings should help sustain expectations of an NBP interest rate cut in March, which were dented by today’s higher-than-forecast inflation print. (...)

CPI inflation stood at 2.2% y/y in January, down from 2.4% y/y in December. The outcome was clearly above expectations: the market consensus was 1.9% y/y, while our forecast stood at 1.7% y/y. Given that January inflation data came in above expectations, we believe the probability of an interest rate cut in March has declined, although it remains our baseline scenario. Moreover, we see a lower probability that the MPC will opt for deeper rate cuts later this year. We maintain our view that the easing cycle will come to a halt in 2Q26, with the NBP reference rate settling at 3.50%.

In European industry we are seeing signs of a recovery, suggesting that domestic exporters may enjoy a modest tailwind this year, not least due to the acceleration of the German economy. Domestic data confirm rising activity across most sectors. Demand for credit is clearly increasing. We continue to expect solid consumption growth to be maintained and a strong acceleration in investment. On the other hand, an exceptionally harsh winter is generating additional costs for household and local government budgets, which over time may weigh on their spending, while delays in the disbursement of funds from the Recovery and Resilience Facility mean that even the government is now pointing to the risk that grants may not be fully utilised. As a result, we keep our GDP forecast for this year broadly unchanged, with average growth at 3.9%. (...)

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.