Economic comment

NBP president Adam Glapiński has fine-tuned his forward guidance regarding monetary policy outlook saying that the MPC may start a discussion about interest rate cuts after inflation stops rising and shows a stabilization for at least 2-3 months and forecasts clearly point to its deceleration in the following periods. (...) Given our inflation forecast, showing that CPI will reach its local peak (near 6%) in March, we keep our call that the MPC may start lowering rates in July 2025, after seeing at least a few CPI prints confirming the end of the upward trend and receiving the new update of NBP inflation forecasts. Earlier move (in March) would be possible, in our view, if the CPI peak appears to be at the end of 2024 rather than in March and the pace of economic recovery looks disappointing. (...)

The draft budget for 2025 shows a continuation of expansionary fiscal policy, leading to a rapid increase in public debt and high borrowing needs. What is noteworthy is not so much the record-high state budget deficit (PLN289bn), which is incomparable to previous years due to the shifts in revenues and expenditures within the public finance sector, but the balance of the entire general government sector (GG), which is planned at -5.5% of GDP in 2025  (c. PLN219bn) compared to -5.7% of GDP this year (previously planned to be -5.1% of GDP in 2024). The macro assumptions have been changed to less cautious, and the forecast of tax revenues is optimistic, which means that – as in the case of the project from a year ago – we see a risk that the implementation of the budget will be worse than planned. (...)
 

2Q GDP growth was confirmed at 3.2% y/y nsa and 1.5% q/q or 4.0% y/y sa. The breakdown of growth looks strong: private consumption accelerated to 4.7% y/y (slightly more than we expected), while public consumption soared 10.7% y/y, both fuelled by strong wage and revenue growth of households. Investment growth jumped from -1.8% y/y in 1Q to +2.7% y/y in 2Q, which is the biggest positive surprise of the release. Overall, it looks like strong domestic demand (which accelerated in 2Q to 4.3% y/y, the strongest in two years) is currently protecting the Polish economy from the impact of poor economic activity in the euro zone. Today’s data do not change our projected economic scenario with 3% GDP growth in 2024 and slightly faster (near 3.5%) in 2025. The GDP growth structure will not give the MPC additional arguments to consider earlier interest rate cuts, in our view.