Economic Analysis

In today's Eyeopener:

- Today Polish industrial output and labour market data and more
- Weakness in US data
- Presidential draft law abolishing the Disciplinary Chamber ready to be voted on

After the weekend the series of Polish monthly data releases, started today, will continue. This will cast more light on the business conditions at the start of 2Q. The data worth watching in our view will be: on Monday construction output and retail sales for April, on Tuesday aggregate 1Q financial results of companies and April money supply, on Wednesday unemployment, consumer sentiment and Statistical Bulleting offering detailed data in many fields. The indicators published today (industrial output, wages, employment, PPI) showed that for the time being the weakening of real economic activity after the outbreak of war in Ukraine is not significant, but the processes of nominal indexation in the economy are still gaining momentum, raising fears that CPI inflation may creep higher than we imagine and prove more persistent. More evidence of these tendencies in the data will support the rise of expectations about further rate hikes by NBP. (...)

April's production data showed some negative influence of the war in Ukraine and of the supply problems. On top of that, the result depended much less than in previous months on the controversial growth in energy production. Add to this the relatively strong employment growth, wage growth exceeding 14% y/y and PPI inflation jumping to over 23% y/y, and we have a picture of an economy that is not bending under the weight of tight monetary policy either in terms of real output or inflationary pressure. Moreover, in May companies were less worried about the impact of the war on the economy, but some sectors experienced a big increase in labour supply.

Rapidly growing inflation became a number one problem in Poland and abroad and concurrently a huge worry for the central banks, which for a long time downplayed the risk of price growth becoming permanent, stating instead that it had transitory nature . Currently they are aware that inflation rates came too high and the risk of de-anchoring of inflation expectations has become significant. It was not a coincidence that Jerome Powell started his last press conference with an address to the American people, stressing that inflation is way too high and the bank is determined to make it fall. NBP governor Adam Glapiński followed in his footsteps saying during his press conference that “inflation is a serious evil” and the MPC will keep hiking rates until they feel certain that the growth of prices goes down permanently (...)

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.