Economic Analysis

In today's Eyeopener:
 
- Today US data on GDP, jobless claims and real estate
- MPC’s Dąbrowski sees equal chance of rate cuts and no cuts in 2025
- Domański: extension of energy price freeze may not be needed
- Trump signed executive order imposing 25% tariffs on all cars imported to the USA
- Złoty with the largest loss among EM currencies yesterday

Spring has arrived , consumer and business sentiment is improving, but there was a chill in the latest ‘hard’ data from the economy - industrial and construction output and wage growth in February were noticeably weaker than forecast, which (combined with earlier news of lower-than-expected inflation) has rekindled market expectations of rate cuts. After the weekend, there will be a few more economic indicators from February, including retail sales and money supply on Monday, registered unemployment on Tuesday. We expect sales growth to moderate slightly after a surprisingly strong rise in January, to a still decent level of around 3% y/y
 

Retail sales joined the set of disappointing February data, showing a decline of 0.5% y/y. The slowdown was seen in almost all categories. In part, this may have been a correction of the exceptionally strong January result. Given the still positive growth in real household income and the diminishing potential for further increases in the savings rate, we view the February reading as another random deviation from a moderately positive trend, which should be consistent with around 3% y/y growth in private consumption this year. Nevertheless, the data has intensified market expectations about the scale of possible rate cuts this year. (...)
 

Events in the global economy and geopolitics have definitely accelerated. Since the outcome of the US presidential election last November, we have been pointing out that the effects of this change on the global economy are difficult to predict and far from obvious. The actions of the new US administration in recent weeks have triggered a sequence of events that has caused a fundamental revision of the economic scenarios priced in by financial markets. Three themes of key importance for the economic and market outlook are playing out in parallel: 1) the turn towards greater protectionism in international trade, 2) the loosening of fiscal rules in Europe, and 3) the efforts to suspend/end hostilities in Ukraine. Each of these has different possible consequences for the future economic growth, inflationary trends and monetary policy outlook - we try to map the main effects in the table on page 7. 

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.