Economic Analysis

- EU-UK have a new agreement, to be voted over weekend
- Lower wage growth in Poland
- Zloty stronger intraday, bonds unchanged
- Today Polish industrial output

Polish industrial output rose in September by 5.6% y/y vs 5.0% market expectations after three negative surprises. In seasonally adjusted terms there was a rebound from 1.7% y/y to 3.5%, but this is still far below 1H average at almost 6%. So industry is slowing down, but in a gradual manner, and so is in our view the whole economy. PPI inflation showed 0.9% y/y in September, markedly surprising to the upside (consensus at 0.5% y/y).

Uncertainty remains the key theme, both locally and externally. The global monetary easing cycle is in progress and the discussion about a coordinated fiscal stimulus broadens, and yet it remains uncertain how quickly it is going to heal the economic growth outlook. So far, the malaise in international trade and manufacturing continues, with an increasing risk of spillover to labour markets and services. As we have argued before, the more prolonged the stagnation in Europe, the greater potential threat for Polish economy, despite our relative resilience and the government’s fiscal package serving as a cushion against external shocks. The latest high-frequency data suggest that Polish GDP growth slowed to c.4% y/y in the third quarter, which still allows us to keep our GDP forecast at 4.3% for the entire 2019 and at 3.5% for 2020. However, the risks are mounting.

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.