Economic Analysis

In today's Eyeopener:

- Today Polish inflation for June, retail sales and HICP inflation in Germany
- Improvement in ESI indicators for Poland
- Mixed data in the USA
- Złoty stable, bond yields slightly higher

Some are already starting their summer holidays, for others it will be a busy week. We will spend it analysing and commenting on preliminary data on June inflation (according to us, it remained at 4.0% y/y), June manufacturing PMI (we see a slight rebound after a big drop in May). In addition, we will know the balance of payments data for 1Q. The Monetary Policy Council also still has to make its final effort to earn the right to a holiday break. In its Wednesday's decision, based on the new projection, the MPC should keep rates unchanged, with the message from the Council and the NBP President during his press conference likely to focus attention on September, as the moment when many of the uncertainty factors will have already disappeared and it will be possible to think about readjusting rates.

Retail sales slowed to 4.4% y/y in May from 7.6% y/y in April, compared to our forecast of 3.3% y/y and the market consensus of 4.3% y/y. According to the stats office, on a seasonally adjusted basis, sales fell by 2% m/m after rising by 3.5% m/m in April. However, in our view, May's data were rather strong and the seasonally adjusted data apparently did not filter out the effect of Easter properly. 

The data confirm that private consumption will contribute decently to GDP growth this year, supported by continued solid growth in real household income and good consumer sentiment.
 

The Polish economy has returned to a path of over 3% economic growth, which we believe is likely to continue in the coming quarters. We maintain our GDP growth forecast for this year close to 3.5%, and for next year we even foresee a slight acceleration to 3.7%. This is a more optimistic scenario than the consensus, motivated, among other things, by our moderately constructive view of the outlook for the eurozone economy and our conviction that the domestic investment cycle is only just taking off and is slightly lagging earlier expectations, so that its greatest momentum will come in 2026. (...)

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.