Economic Analysis

In today's Eyeopener

- No important data releases today
- European Commission cut GDP forecasts for Poland
- Zloty trimmed losses after initial negative reaction to results of 1st round of election
- Polish bond yields up, core market saw only a temporary increase

The number one local topic at the start of next week is likely to be the results of the first round of the presidential election. Polls invariably show that Rafał Trzaskowski and Karol Nawrocki have the best chances of advancing to the next stage. The conclusive second round will take place on June 1st.
Later in the week, attention will shift to economic data: In Poland, almost all key monthly indicators apart from retail sales will be published (on Wednesday: April wages and employment, industrial production, PPI inflation and May consumer confidence; on Thursday: construction output and business sentiment; on Friday: M3 money supply). Abroad, there will be, among other things, inflation data and business sentiment indices: preliminary PMIs for industry and services, the German Ifo index. There are also many public speeches by representatives of major central banks in the agenda. (...)

In 1Q25, Poland’s GDP growth slowed to 3.2% y/y, in line with the median of market forecasts, and seasonally adjusted data showed a higher-than-expected rise by 3.8% y/y and as much as 0.7% q/q. This indicates that the slowdown in economic activity at the beginning of the year was not as significant as suggested by the monthly production and sales data published earlier, probably thanks to still high activity in services. The final CPI inflation data showed a decline to 4.3% y/y, slightly smaller than reported in the preliminary data (4.2% y/y). The detailed data suggest a moderation in core inflation in April to 3.5-3.6% y/y. Overall, today’s set of information does not significantly alter the economic scenario for the coming quarters, but it supports a cautious approach to further monetary easing (just like the 1Q wage data released last week which still showed double-digit growth, 10% y/y).

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.