Economic Analysis

In today's Eyeopener:

• Today CPI inflation data in the USA
• President showed a bill establishing Defence Investment Fund
• Surprisingly strong rise in number of jobseekers in February
• Zloty stronger, major decline in bond yields
   

Since the last weekend, the world's attention has been focused on the situation in the Middle East, and it seems that this will not change in the near future. Of course, we do not know how long the conflict with Iran will last, but the available information does not suggest a rapid de-escalation at this stage. Economic scenarios must therefore be viewed as variants, with their probabilities updated on an ongoing basis. 
There are many possible future scenarios, but for simplicity, let us distinguish three main ones: (1) rapid de-escalation, accompanied by a normalisation of commodity prices (within 4-6 weeks), (2) the current intensity of the conflict and the current oil and gas prices continuing for longer, say until the end of this year, (3) further escalation, combined with a further rise in commodity prices.  (...)

At today’s conference NBP governor Adam Glapiński confirmed that the MPC cut main interest rates again this week mainly because the recent data confirmed a further decline of inflation and the new NBP projection showed improvement of inflation outlook. The low inflation in future should be supported by: 1) deceleration of wage growth, 2) lack of economic overheating, 3) continued PPI decline, 4) experienced inflow of cheap goods from China. The main short-term risk is the situation in the Middle East, but – as it is impossible to predict its further development and consequences – the Council did not take this factor into account at the last meeting. (...)

In European industry we are seeing signs of a recovery, suggesting that domestic exporters may enjoy a modest tailwind this year, not least due to the acceleration of the German economy. Domestic data confirm rising activity across most sectors. Demand for credit is clearly increasing. We continue to expect solid consumption growth to be maintained and a strong acceleration in investment. On the other hand, an exceptionally harsh winter is generating additional costs for household and local government budgets, which over time may weigh on their spending, while delays in the disbursement of funds from the Recovery and Resilience Facility mean that even the government is now pointing to the risk that grants may not be fully utilised. As a result, we keep our GDP forecast for this year broadly unchanged, with average growth at 3.9%. (...)