Economic Analysis

In today's Eyeopener:
 
- Today data on construction production for October and consumer survey for November
- MPC’s Kochalski: discussion on rate cuts in March, irrespective of energy price regulations
- Further pressure from strong dollar, domestic market rates down

Another shorter week is ahead of us - Monday is a market holiday not only in Poland, but also in the USA. The publication calendar is again light, but concise. In Poland we will get: data on the September balance of payments (Wednesday), preliminary estimate of GDP growth in the third quarter (Thursday), full data on October inflation (Friday) and perhaps also the results of the central budget for October. (...) However, the most important item of this set will be the publication on GDP growth. The market consensus according to Bloomberg is c. 3% y/y, according to Parkiet 2.9%, and the latest NBP projection assumes 2.6% y/y. We have decided to lower our forecast to 2.8% y/y (earlier we had it at 3.3% y/y) after a series of disappointing September data, which would correspond to a seasonally-adjusted change in GDP by c. 0.3% q/q. (...)

GDP growth slowed down to 2.7% y/y in the third quarter, vs. our forecast of 2.8% y/y and 3.2% y/y growth in the second quarter. Seasonally-adjusted GDP decreased by 0.2% q/q. Unlike in the previous quarter, Poland was no longer the only economy in the CEE region that resisted the economic slowdown resulting from stagnation in the Eurozone. The data is not good enough to be calm about the condition of the domestic economy, but also not bad enough to conclude that the economic scenario has worsened dramatically. We continue to lean towards a hypothesis that the weaker result of the third quarter is a temporary disruption of the upward trend rather than a signal of a permanent weakness. High-frequency data for the coming months will be crucial for verifying this hypothesis.

The return of Donald Trump to the Oval Office with the Republicans simultaneously taking over the Senate and retaining control of the House of Representatives signals major changes to the world economy and geopolitics. What these changes will exactly entail is hard to foresee, as one of the trademarks of the president-elect is his unpredictability. However, given his earlier statements, the initial reaction of the financial markets to his victory seems to have been rational, as the dollar strengthened against the euro, emerging market currencies – especially the Mexican peso and the CEE currencies – depreciated, the yields on US Treasuries rose, and the yields on German bunds fell. The size of these initial responses was, however, limited which suggests that market participants remain unsure as to what the actual policies of the new administration will be (...)

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.