Economic Analysis

In today's Eyeopener:

- Today Czech inflation, US index of sentiment among small businesses
- Polish Finance Ministry’s data show a revival of spending from the Recovery and Resilience Plan
- Złoty stronger at the start of the week, the Polish yields curve keeps steepening

Next week the calendar of economic events is quite modest. In Poland, there are only two data releases: on Friday, the 13th, there will be May CPI inflation and the April balance of payments. Abroad, mainly inflation data (including in Czechia, Hungary, the US and eurozone countries), plus industrial production in the eurozone, the University of Michigan's US consumer sentiment index. (...) Investors' attention will remained focused around political issues, including the confidence vote for the government scheduled for Wednesday 11 June in the parliament. Earlier, on Monday, a meeting of coalition leaders is to be held, at which the terms of further cooperation and programme proposals to be included in PM Tusk's expose may be agreed. Sejm Speaker Szymon Hołownia today proposed to include a windfall tax on bank profits in the coalition agreement. 

Today’s conference of the NBP president Adam Glapiński was exceptionally short and to the point, and in our view flagged another shift in the central bank’s narrative, again towards more hawkish one. Just like in months preceding his dovish pivot in April, Glapiński was downplaying news which were positive for the inflation outlook, while emphasizing all possible risks on the horizon. He acknowledged slight decrease of CPI inflation to 4.1% y/y in April, yet underscoring that it remains “well above” the inflation target.  He also noticed a reduction of gas tariffs since July, admitting that inflation may near 3% in 3Q25, but at the same time pointed that such scenario is still subject to large uncertainty and listed risks that could worsen inflation outlook in the medium term. (...)

The reciprocal tariffs imposed by the US on most countries remain suspended until early July, and it has just been agreed between the US and China that higher tariff rates are to be suspended until August. This creates a window of time in which business should still go quite well, even though companies will likely still worry about their prospects. It may even be possible to count on an increase in orders and a build-up of inventories ahead of the possible entry into force of significantly higher tariffs (...) The MPC's May decision to cut rates by 50bp was described as an adjustment of the rate level rather than a start of regular monetary easing. The Council is still divided as to whether the resumption of rate cuts should take place in July or September, i.e. whether a favourable projection is enough for this or whether it is first necessary to see inflation’s decline below 3.5% y/y in actual data. In our view, rates will go down twice more this 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.