In September's Rates and FX Outlook:
The post-Brexit market turbulence did not last long. Growing hopes for more monetary stimulus by the main central banks triggered a rally in the bond markets with Polish bond yields falling to April lows and the spread vs the 10Y Bunds returning below 300bp. EM currencies also rebounded, although the zloty and the CEE region’s currencies gained less than, for example, their Latam counterparts. They were probably held back by worries about the looming economic slowdown in Europe as well as some country-specific risk factors (see below).
The GDP growth slowdown to 3.0% y/y in 1Q16 was stronger than expected, but we see growing evidence that the following quarters should be better, as economic growth should be supported by strong external demand (growth in the Euro zone, particularly in Germany, is doing fine) and accelerating private consumption (boosted by solid labour income and new child subsidies). Thus, we expect GDP growth in Poland to gradually accelerate, reaching nearly 3.5% on average in 2016. Deflation is surprisingly persistent, but we think that the CPI has already passed the trough, and over the coming months there should be a gradual pickup towards 0.5% y/y at the end of this year and 1.5% y/y at the end of 2017.