MACROscope

Financial markets volatility has surged in recent weeks as a result of economic tug-of-war between risks of persistently high inflation calling for more aggressive monetary tightening, and worries of recession. (…) Polish economy sees growing evidence of major activity slowdown underway, which is likely to drag GDP growth down to around 1% y/y at the end of 2022 and slightly below zero in early 2023. Yet, we see chances for a gradual revival later next year, after/if the EU recovery money gets unlocked and situation in Ukraine stabilises. The magnitude and length of the recession may be bigger if energy problems in Europe prove more severe than we think. (…) Inflation is close to its local peak, according to our baseline scenario, and after levelling off in the summer months, it may descend slightly later this year. 

As we have written before, the domestic economy started the year on a high note. Last month, however, we got to see statistics that point to a gradual deterioration in economic outlook. (...) In our view, we will be getting more and more such negative signals in the coming months. (...) We still expect inflation to peak in the summer months, at around 15-16% y/y, and then to stabilise or decline slightly. (...) The deterioration of the economic outlook and the vision of an imminent inflation peak have changed the attitude of the NBP President, Adam Glapiński, who after the June meeting suggested that the MPC is closer to the end of the rate hike cycle than to its beginning. We expect another 75bp hike in July and then a 25bp hike in September, bringing the reference rate to 7.00%. Still, in our view, risks are asymmetrically skewed upwards, primarily due to a possible further inflation shock in the autumn (food prices). (...)