Economic Analysis

In today's Eyeopener:

• Today, business climate indices, detailed German GDP, J.Powell’s speech
• Industrial output accelerated in July to 2.9% y/y, wages slowed to 7.6% y/y
• Unexpected improvement of sentiment in industry in Germany, euro zone, USA
• Finance Ministry plans tax increases in 2026
• Weaker CEE currencies, small changes in debt markets

Next week will begin with core inflation data for July, which we expect to remain in the 3.3-3.4% y/y range for the fourth consecutive month. On Thursday, a significant portion of key monthly economic data for July will be released (wages, employment, industrial and construction production, PPI inflation, housing market statistics, and agricultural product prices), as well as the results of the August consumer sentiment survey. On Friday, the statistical office will release business climate indicators. For industrial production (a return to positive growth of 0.9% y/y after an unexpected decline in June) and construction (a slowdown to 0.4% y/y from 2.2% previously), our forecasts deviate below market expectations. In turn, we assess wages (a slight slowdown to below 9% y/y), employment (a 0.8% annual decline), and PPI inflation (an increase to -1.4% y/y) in line with the market. (...)

In July's economic data set, industrial production clearly exceeded expectations (2.9% y/y, market: 1.8%, our forecast: 1.4%) contrasted with negative surprises from the labour market, both in terms of wage growth (slowing to 7.6% y/y, a percentage point lower than market expectations) and the scale of employment decline in the enterprise sector (deepening to -0.9% y/y). The construction sector recorded its second consecutive y/y increase in production volume, and data from the housing market began to show signs of bottoming out. PPI inflation remained negative. Consumer sentiment improved in August.

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.