Economic Analysis

In today's Eyeopener
  
- Today, GUS business climate indicators, flash PMIs in Europe and USA
- Output in industry and construction above consensus, wage growth slowed
- Zloty again below 4.17, bond yields higher

The talks on Ukraine remain the key factor for market sentiment in the region. The meeting of US and Russian officials in Saudi Arabia ended with a signal of readiness for further talks not only on the end of the war in Ukraine, but also on the normalisation of diplomatic relations and economic cooperation. A Kremlin spokesman suggested that a direct meeting between D.Trump and V.Putin was possible before the end of this month (i.e. in the nearest week), but a bit later optimism on the matter was somewhat cooled by the US Secretary of State, who said that the timing of this meeting would depend on progress in the talks on ending the war.
Just after the weekend, however, attention will focus on the results of the German election. (...)

In January, industrial production fell by 1.0% y/y, in line with our forecast and by less than the market had expected (-1.5% y/y). PPI inflation rebounded to -0.9% y/y, but the market had expected a rise to -0.4%. Construction output beat market expectations by far for the second month in a row with a result of 4.3% y/y, while the median forecast was negative. Such a result suggests that the investment cycle based on EU funds has started to gain momentum. Wages and employment data in the corporate sector for January are subject to distortions due to the annual sample change, so should be interpreted with caution. They showed a further deceleration in wage growth, to 9.2% y/y from December's 9.8% y/y, and a 0.9% y/y decline in employment. Of this set, from the point of view of inflationary pressures, the most significant is the further deceleration in wages, including in services, which – if continued - should open the way for interest rate cuts over time.

It is now three months since the re-election of Donald Trump as US president, and uncertainty about the effects of changes in US policy on the global economy and global security has not decreased significantly, but rather has entered a new level. It has become apparent that even decisions already announced and taken (as in the case of the imposition of 25% tariffs on Canada and Mexico) tell us little about what will actually happen, as they can be put on hold or reversed in an instant. On one hand, it makes economic forecasting still difficult; on the other hand, it leaves open the possibility that, for example, fears of a sharp turn towards trade protectionism that could harm the global economy will ultimately materialise only to a limited extent (...)

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.