Economic Analysis

In today's Eyeopener:

- Weaker data from China and Germany, slightly better from USA
- Polish GDP growth slightly below forecast, inflation accelerating
- Zloty and forint weaker, dollar stronger
- Yield curves reversing
- Today , core inflation data in Poland  

What’s hot in the next two weeks:

Investors are more and more concerned about possible strong slowdown in the global economy due to a further escalation of trade and FX wars as well as political tension. Deep declines of US bond yields caused an inversion of yield curve at a scale that was always a harbinger of US recession, at least over the last fifty years. More and more central banks get on the easing bandwagon (last week: India, Thailand, New Zealand).
In the upcoming two weeks there are numerous US and euro zone data releases scheduled. These can test the blooming expectations for further monetary easing globally. In details, we will get to see euro zone and US inflation and production, GDP in the euro zone, flash PMIs. Fed minutes from the July meeting are also to be released, and this was the first meeting with rate cuts. On 22 August the central bankers’ conference in Jackson Hole starts. (...)

GDP growth in 2Q19 slowed to 4.4% y/y, slightly below expectations, while CPI inflation rose to 2.9% y/y, in line with the flash estimate. Both trends are likely to be maintained in the coming quarters – economic growth will probably continue slowing gently, while inflation will keep climbing, with a risk of exceeding 4% in January 2020. The data are unlikely to change Polish central bank’s mindset, as inflation spike, even if stronger than expected, will be perceived as temporary in the context of deteriorating growth outlook abroad. 

We suggested in our last MACROscope that it is not a good time for upward GDP forecast revisions and the disappointing set of June data proved that call was right. Still, in our view the downward surprises in wages, industrial and construction output were mostly driven by one-offs: low number of working days, Corpus Christi long weekend and extremely high temperatures. July is likely to show a rebound, but the economy is generally moving on a downward trend. Our estimate for 2Q19 sits at 4.5% y/y (flash print due on August 14). In 2H19 private consumption will be supported by the fiscal stimulus so we feel comfortable with our forecast of mild slowdown towards 4% y/y in 4Q19.

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.