Economic Analysis

In today's Eyeopener:

- Positive data from USA, but growth worries remain
- Polish May CPI eventually at 2.4%
- EURPLN stable, EURUSD down
- Polish bonds still gain
- Today Polish core inflation, start of Sintra conference

What’s hot in the next two weeks

• The issue of the trade wars in the global political leaders’ comments should still be highlighted in the nearest future and concerns about the global growth should stay alive. Key global policy makers: Fed, ECB, BoE, BoJ will have opportunity this week to explain their views and plans. 
• The presidents of the USA and China are supposed to meet at the G20 summit in Osaka, 28-29 June, which could be another milestone event in the ongoing trade negotiations.

According to a flash estimate, GDP growth in Poland in 1Q19 was 4.6% y/y, slightly above forecasts (Santander: 4.5%, market consensus 4.4%) vs 4.9% in 4Q18. Seasonally adjusted growth was 1.4% q/q. The Polish economy is so far quite resilient to the global economic slowdown, but we think GDP growth will decrease further in the coming quarters. Final data on April CPI confirmed the surprisingly strong rise to 2.2% y/y. Services inflation accelerated significantly (to 3.6% y/y from 2.7%). We estimate core inflation at 1.7% y/y, the highest level in more than six years. The data are unlikely to influence the MPC rhetoric. 

The Polish economy remained strong, even though despite economists, including us, were broadly expecting a slowdown. Flash GDP for 1Q19 showed a high 4.6% y/y, only slightly below 4.9% y/y posted in 4Q18. Seasonally-adjusted quarterly growth rate at 1.4% has been one of the best results since the start of the recovery. We will get to see the detailed breakdown on 31 May but the data we already have available suggest that the growth fundamentals will remain healthy, with no signs of overheating after a long growth streak, no negative blow to net exports stemming from the weaker condition in the euro zone and no signs of hesitant investment policy given worries about global economic growth in 2H19. Even though the economic cycle is quite mature, figures from companies employing 50 and more showed investment growth at 21.7% y/y – the highest since 2007. In our view, this may be partially labelled as a response to the labour market squeeze

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.