Economic Analysis

In today's Eyeopener:

- Today, data on domestic activity in March
- The second round of peace talks between the US and Iran has not yet begun
- The Minister of Finance sees no need to amend the budget 
- The zloty slightly stronger, the bond market weaker

Key March economic activity data are coming this week. On Tuesday, we will see wages and employment, as well as industrial and construction output and producer prices. The picture will be completed retail sales and money supply data on Thursday, GUS Statistical Bulletin on Friday. March was the first month of the year in which weather conditions allowed producers and construction companies to operate normally, so we expect a clear rebound in their performance (...)

After the first two months of the year, marked by heavy snowfall and frosts but weak in terms of economic activity, we finally saw a solid rebound in March, exceeding both market expectations and our estimates. Industrial output recorded a 9.4% y/y increase, the strongest in 3.5 years, while construction and assembly output rose by 0.4% y/y and as much as 37% m/m. Activity in the housing market also looked strong in March, as did wage growth in the enterprise sector, which accelerated to 6.6% y/y, versus market expectations of 6.3% y/y. Employment, however, surprised to the downside, declining by 0.9% y/y. PPI inflation reacted sharply to the surge in global energy commodity prices, moving up to -0.8% y/y from -2.0% y/y in February. Overall, the March data tell us that GDP growth may have remained close to 4% y/y in 1Q.

In mid‑March we published a report outlining three scenarios for the development of the economic outlook, depending on how prolonged and severe the commodity shock triggered by the war in Iran would prove to be. Three weeks later, we can conclude that the first scenario, which we had then considered the most likely, turned out to be overly optimistic, and the baseline scenario is shifting towards scenario number two: the conflict does not escalate further, but prolonged uncertainty and the damage already inflicted on infrastructure mean that commodity prices may remain at least 15–20% above their February levels for most of this year. Recent reports about an agreement on a two‑week ceasefire are interpreted by us as a clear signal that neither the US nor Iran is interested in further escalation or a prolongation of the war. (…)