Economic Analysis

In today's Eyeopener:

- Further improvement of market sentiments 
- General government debt lowest since 2007
- Zloty weaker, Polish bonds stable
- Today PMI indices    
 

•    First economic data that include the impact of pandemic released already in some countries look pretty gloomy. Flash PMIs plummeted, mainly in services, and signal deep recession. In the US, the initial jobless claims rose by more than 3mn in a week (c.1% of the US population), to its highest level on record. In Norway, the similar measure jumped by 350% within two weeks which implies unemployment rate at above 10% (the highest since Great Depression in the 1930s).
•    In the coming days, we will see more of such releases, but what could now trigger a yet another wave of pessimism is not weakness in macro data, it seems, but information that economic deadlock might last longer than expected.
 

Construction output rose in February by 5.6% y/y (or 5.8% y/y after seasonal adjustment), which was way above market expectations (near 1% y/y). Retail sales rebounded to 7.3% y/y in February from 3.4% y/y in January with a broad-based recovery in most categories and also beat consensus at about 4% y/y. March sectoral business sentiment indicators worsened (albeit still did not reflect the situation after the lockdown as the GUS business sentiment surveys are collected in the first 10 days of each month). The today's data, together with better than expected results of manufacturing, imply that the scale of GDP growth deceleration in 1Q might not be very dramatic (yet), even taking into account possible losses after the country lockdown in mid-March. The big deterioration in economic activity is yet to come, though.

The hopes for global economic revival need to be put off for now as the coronavirus keeps spreading and governments try to coordinate action aimed at bringing the situation back under control. The market mood may improve sooner than the growth actually picks up if more policymakers follow the Fed that cut interest rates by 50bp at the unscheduled meeting.

In late February, the stat office released detailed 4Q19 GDP data that made us revise our 2020 GDP growth profile. Overall, the headline for 2020 has not changed significantly (3%) but the quarterly path now looks more upside running instead of roughly flat 3% in each consecutive quarter. In our opinion, any attempts to assess the total impact of COVID-2019 on the economic activity bear a significant error, but this is clear that the risk to our Poland GDP growth forecasts is tilted to the downside, even after the revision of growth in 1H20.
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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.