Economic Analysis

In today's Eyeopener:

- Today US data on employment and unemployment
- MPC’s Dąbrowski: 50% chance of a rate cut in January
- ESI index for Poland showed better sentiment in December
- Złoty stable, domestic bond yields a bit higher

Welcome to the new year! May it bring all our readers joy and prosperity! This week, the key domestic topic will once again be monetary policy. On Tuesday, the MPC meeting begins, featuring the debut of a new Council member, Marcin Zarzecki, appointed by the President to replace Cezary Kochalski. His views on monetary policy are not yet known; we expect the first interviews after the MPC meeting concludes. The MPC decision will be announced on Wednesday. We assume that – in line with earlier suggestions – the Council will keep interest rates unchanged. On Thursday at 15:00, as usual, NBP Governor Adam Glapiński will hold a press conference explaining the decision. On Thursday morning, full CPI data for December will be released, and on Friday, core inflation data. Earlier, on Tuesday, we will get balance of payments data for November. (...)

Retail sales rose 3.1% y/y in November, slightly below market consensus and our forecast – both at 3.9% y/y. Seasonally adjusted sales increased by 1.1% m/m and 5.5% y/y, which is a solid result, only marginally below October’s 5.6% y/y rise, and confirms, in our view, that consumer demand remains quite strong. The growth rate of durable goods sales stayed very high, close to 15% y/y. We expect moderately fast growth in private consumption to continue in the coming quarters, with a stable contribution to GDP growth. December’s deterioration in business sentiment in industry was accompanied by improvement in transport, construction and retail trade. In November, agricultural product prices fell sharply, creating room for further easing in food price growth in CPI in the coming months.

Recent positive data from the domestic economy have sparked a wave of optimism about the prospects for economic growth in Poland. For us, this optimism is nothing new. We wrote about the fact that the coming years would be marked by strong investment growth and that 2026 would be better than 2025 in terms of GDP growth before it became trendy. At the same time, it is worth bearing in mind that these will not be easy years, free from uncertainty, and that the acceleration in domestic growth will be moderate rather than spectacular. In our opinion, the increasingly popular slogan ‘GDP at four plus’ will materialise more likely in the form of nominal GDP level exceeding PLN 4 trillion, rather than in the form of average real GDP growth for the entire year above 4% (although this may not be far off) (...)

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.