Economic Analysis

In today's Eyeopener
  
- Today flash CPI data for June 
- Energy regulator approved new tariffs, electricity and natural gas bill will rise c.20%
- ESI shows slight worsening of business climate in June in Poland and euro zone
- Little changes in PLN exchange rate, slight decrease of yields

At the beginning of the new week, the results of the first round of parliamentary elections in France will probably be the key topic. Polls indicate that the far-right National Rally (RN) enjoys the greatest (and growing) support, followed by the united left bloc (NFP), and only third is the liberal coalition (ENS) built around Macron's party. The result of the election and its interpretation by the markets may be a key determinant of market sentiment at the beginning of the week. Elevated volatility is quite likely, although it is worth remembering that the actual shape of the parliament and the government will be determined only by the results of the second round of elections a week later. (...) In Poland, the main economic events after the week will be: the PMI index on Monday, the MPC decision on Wednesday and the press conference of the NBP Governor Adam Glapiński on Thursday. (...)

Retail sales rose by 5.0% y/y (3.3% m/m in seasonally-adjusted terms) in May, stronger than we expected but weaker than the consensus indicated. The improvement was particularly evident in non-durable goods, including food sales and non-specialised shops. Thanks to the favourable labour market situation and consumer optimism, we remain fairly optimistic about the outlook for retail sales and private consumption. Construction output growth dropped in May to -6.5% y/y, below market expectations of -4.8% y/y and our estimate of -5.0% y/y. Civil engineering works, at-6.6% y/y, were responsible for the deterioration. Nevertheless, we consider the construction outlook to be positive given the inflow of EU funds. (...)

No, Poland will not become the European champion in football, but in terms of GDP growth in the next two years it should be among the leaders. We certainly have a chance for the first place in 2025 when it comes to the lowest unemployment and the highest inflation. A high fiscal deficit will also place us close to the top of the EU.
Despite the exceptionally high volatility visible in high-frequency data, in our opinion the Polish economy remains on the path of gradual economic recovery. Exactly a year ago we put forward the hypothesis that the economy is at a turning point and GDP growth in the second half of 2023 should start to recover, accelerating to about 3% in 2024. In retrospect, we think that this was actually a good call and a scenario, assuming the leading role of consumption in this year's economic recovery, but also a break in the downward trend in industry, remains valid. (...)

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.