Economic Analysis

In today's Eyeopener
  
- Today, flash CPI for April, NBP Quick Monitoring, flash GDP data abroad
- Government assumes 3.7% GDP and 4.5% inflation this year, above our forecasts
- ESI for Poland unchanged in April, lower in euro zone
- Hungary did not change interest rates, small moves in CEE currencies

Real data on the state of the Polish economy in March are behind us and most of them turned out to be not as good as we had hoped. Yet, after taking that into account, our estimate of GDP growth in 1Q25 remained at 3.1% y/y. In the following quarters, we expect an acceleration of the economy and a 3.4% growth for the whole year. Domestic data scheduled for publication over the next two weeks will already concern April: a preliminary estimate of CPI inflation (30 April), manufacturing PMI (2 May), and a set of Economic Sentiment Indicators (29 April). On 6-7 May there will be an MPC meeting which will most likely bring a resumption of interest rate cuts (...) Inflation in April likely fell markedly, in our view from 4.9% y/y to 4.2% y/y (...) We expect the May MPC meeting to bring a 50 bp rate cut as well as forward guidance that the cut may not necessarily be an opening move in a longer series (...)

In March, retail sales fell by 0.3% y/y against market expectations of +0.6% y/y and our forecast of -0.9% y/y. Seasonally adjusted real retail sales increased by 1.9% m/m and 1.0% y/y. In our view, the data look pretty good and we think that the consensus was actually too optimistic, given the Easter effect (last year it was in March, this year in April) and fewer shopping Sundays than a year ago. The negative headline reading was caused by the fall in food sales, while other categories looked solid, especially sales of durable goods. We think that today's data will not discourage the MPC from cutting interest rates at its next meeting in May.
 

Donald Trump's announcement in early April of a new package of tariffs, dubbed “reciprocal”, effectively meaning an increase in US trade protectionism to the highest level in more than a century, generated additional uncertainty about the economic outlook. The destabilisation in financial markets that followed in response to these developments reflected increased concerns about a global economy slowdown and the risk of a US recession, but also the difficulty in assessing further possible scenarios. The latest US decision to suspend reciprocal tariffs for 90 days for all but China has brought a market recovery, but has not removed uncertainty. On the contrary, it is a confirmation that conditions for business and trade can change dramatically at any time. The US administration is suggesting room for negotiation, but it is unclear whether it will even be possible to restore tariffs lower than the 10% referred to as the base tariff (...)

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.