Economic comment

Retail sales slowed to 4.4% y/y in May from 7.6% y/y in April, compared to our forecast of 3.3% y/y and the market consensus of 4.3% y/y. According to the stats office, on a seasonally adjusted basis, sales fell by 2% m/m after rising by 3.5% m/m in April. However, in our view, May's data were rather strong and the seasonally adjusted data apparently did not filter out the effect of Easter properly. 

The data confirm that private consumption will contribute decently to GDP growth this year, supported by continued solid growth in real household income and good consumer sentiment.
 

May's data on output in industry and construction, as well as wage and employment figures, brought a slight disappointment. However, the scale of deviation from the market expectations was not large enough to tempt us to change our view on the positive prospects for the Polish economy. We still assume that 2Q25 GDP growth will be no lower than 3.2% y/y recorded in 1Q25. The output growth in industry improved to nearly 4% y/y, in construction the decline was limited to less than 3% y/y. Wages decelerated more than the market and us had expected, but the 8.4% y/y result for May is still markedly higher than the current inflation. Employment was stuck at -0.8% y/y growth rate, and while the monthly decline in FTEs looks worrying, this is only a slice of the Polish labour market.

Inflation in May was 4.0% y/y, lower than the initial estimate of 4.1% y/y, which in turn was lower than analysts' expectations. Core inflation most likely fell to 3.3% y/y in May. We can expect a further strong decline in inflation in July-August, but its scale will be determined, among other things, by the behaviour of fuel prices and the exchange rates. The conflict in the Middle East generates the risk of spike in oil prices and weakening of the zloty. If it was not to happen, we would be increasingly convinced that the inflation rate during the summer will touch the inflation target of 2.5% and remain significantly below 3% for several quarters. In our opinion, in the current conditions, the central bank will not rush to reduce interest rates and another rate cut is only possible after the summer.