Economic Analysis

In today's Eyeopener

- Today data on Poland’s labour market, PPI, industrial and construction output
- US interest rates were cut by 25bp, Fed highlighted concerns about the labour market
- Polish consumer sentiment rose markedly in September
- Stronger dollar and weaker CEE currencies after the FOMC communication

Next week may be quite interesting: we will get a large set of domestic data, describing the state of the economy in August (CPI on Monday, core inflation on Tuesday, consumer confidence on Wednesday, wages, employment, PPI, industrial and construction output on Thursday, plus possibly information on budget execution), which will end with a review of Poland's rating by Moody's on Friday evening. (...) The list of data releases abroad is shorter, including inflation in the eurozone, production and retail sales in the US. However, there will be decisions by important central banks, in particular the FOMC, plus the Bank of Canada, the Bank of England and the Bank of Japan. (...) Russia and Belarus start military exercises Zapad-2025 today, which will last until Tuesday, 16 September. Should any further incidents occur near the border of Poland or other countries on NATO's eastern flank, this could have a negative impact on the risk premium in the region. (...)

August data from the Polish economy turned out to be weaker than expected in most cases. While the slowdown in production growth was in line with our forecast and resulted, among other things, from fewer working days, the slump in construction and assembly production raises many questions about the reasons for this situation. Average wages in the enterprise sector slowed to 7.1% y/y in August from 7.6% in July, which is below expectations, while employment in the enterprise sector fell by 0.8% y/y, in line with expectations. 
From the point of view of further decisions by the Monetary Policy Council, today's data reduce the risks of persistent inflationary pressure in the economy, thus providing more scope for interest rate cuts. However, we believe that the decisive factor before the next MPC meeting will be the September inflation reading, which will be released on the last day of the month.

Since the publication of our previous report before the summer holidays, the macroeconomic scenario has not changed much. The Polish economy remains on a path of moderate recovery, which should result in GDP growth of 3.5% this year and 3.7% next year. However, the composition of this growth will be slightly different than we had assumed. Due to the protracted delay in spending funds from the RRF, the investment impulse is shifting more and more towards 2026. Nevertheless, we are already seeing early signs of this cycle, in the form of growing investment expenditure by local governments and large companies. This year's slightly weaker-than-expected investment will be offset by stronger household consumption, which, in addition to solid real income growth, is being driven by a credit revival and a normalisation of the savings rate from the exceptionally high level reached last year. (...)

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.