Economic Analysis

In today's Eyeopener:
 
- Today March core inflation in Poland, Eurozone HICP inflation, US retail sales and output
- CPI inflation confirmed at 4.9% y/y in March
- Large central budget deficit in March, among others due to repayment of PFR bonds
- PLN and Polish bonds stable
 

The final week before Easter will see a moderate number of economic releases, but the atmosphere in the financial markets is likely to remain extremely heated as the US-China trade war is continuously escalating. 
In the domestic calendar, the headline releases are March CPI inflation data on Tuesday, core inflation on Wednesday, revised quarterly GDP data for 2023-24 on Thursday. There may also be information on March budget execution later in the week. Abroad, among other figures, inflation data in several European countries, US industrial production and retail sales, Chinese preliminary GDP reading for 1Q25. (...)

March CPI inflation in Poland printed 4.9% y/y, unchanged from January and February. Monthly price growth was revised up to 0.2% m/m from 0.1% m/m shown in the preliminary reading. We estimate core inflation excluding energy prices at 3.6% y/y - slightly higher than after the preliminary reading. Services prices slowed to 6.4% y/y from 6.6% y/y and goods prices accelerated to 4.4% y/y from 4.3% y/y.
We expect CPI growth to slow to 4.2-4.3% y/y in April. Another significant fall in inflation is very likely in July. By the end of the year, CPI inflation should be close to 3.5% y/y, in our view. Such an inflation trajectory supports an interest rate cut, which we believe will take place as early as May, given the recent dovish turn in the MPC members’ rhetoric.
According to a new publication by GUS, the rate of growth of services output was at 7.7% y/y, above the 4.1% y/y in December and averaging just under 4% y/y for the whole of 2024.
 

Donald Trump's announcement in early April of a new package of tariffs, dubbed “reciprocal”, effectively meaning an increase in US trade protectionism to the highest level in more than a century, generated additional uncertainty about the economic outlook. The destabilisation in financial markets that followed in response to these developments reflected increased concerns about a global economy slowdown and the risk of a US recession, but also the difficulty in assessing further possible scenarios. The latest US decision to suspend reciprocal tariffs for 90 days for all but China has brought a market recovery, but has not removed uncertainty. On the contrary, it is a confirmation that conditions for business and trade can change dramatically at any time. The US administration is suggesting room for negotiation, but it is unclear whether it will even be possible to restore tariffs lower than the 10% referred to as the base tariff (...)

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.