Economic Analysis

In today's Eyeopener:

- Today results of the March business sentiment survey
- Solid industrial output, sub-consensus wage growth and construction output in February
- ECB left interest rates unchanged, sharply revised forecasts and outlined negative scenarios
- Limited moves in CEE FX markets, domestic bond yields up

The economic data calendar for the coming week will be rather light. In Poland we will receive February data on retail sales and money supply (Monday), unemployment and the monthly GUS Statistical Bulletin (Tuesday).
Our retail sales growth forecast (4% y/y) is clearly below the market consensus median (around 6% y/y). The forecast is based on an analysis of card payment data from our bank’s clients - which in recent months have provided a fairly good indication of retail sales developments. If this proves correct, the figures would add to the set of arguments for the MPC not to rush its monetary policy response to commodity price swings - slowing wage and consumption growth would reduce the risk of so called second round effects. In any case, any monetary policy changes before July seem highly unlikely at this point. . (...)

February data were mixed. Industrial output rose by 1.5% y/y following a decline and slightly outperforming market expectations, while seasonally adjusted output increased by 0.6% m/m. Growth was driven by mining (19.6% y/y) and energy (13.5% y/y), whereas manufacturing was almost flat (0.2% y/y). At the same time, construction activity disappointed sharply, with the decline deepening to -13.7% y/y. The labour market remained relatively stable: wages in the enterprise sector increased by 6.1% y/y, below expectations, while employment continued to fall at -0.8% y/y. PPI inflation rose to -2.3% y/y from -2.6% y/y. However, rising global energy commodity prices suggest the index could shift quickly towards the -1% to 0% y/y range in the coming months. Overall, the data do not appear to generate price pressures requiring a response from the MPC, instead allowing time to assess the implications of the Middle East conflict within the wait-and-see approach signalled in recent comments by Council members.

This was supposed to be a very good year for the Polish economy, with GDP growth close to 4%, the peak of the investment cycle, resilient consumption and a strong labour market, inflation stabilising close to the NBP’s target, and slightly declining interest rates. We still see a chance that this scenario will materialise, although its success depends to a large extent on how persistent the disruption in commodity markets triggered by the US-Israeli attack on Iran proves to be. Since the beginning of the decade, the global economy has been fighting one battle after another, grappling with, among other things, the global pandemic, the energy crisis, rising geopolitical instability, a wave of economic protectionism, volatility in financial markets, and now a severe disruption in commodity markets. (...)