Economic Analysis

In today's Eyeopener
  
- Today US data on PCE inflation, spending and incomes in March
- Quick Monitoring: improving demand prospects, higher stocks, weaker exports
- Real GDP growth in the USA below forecasts, but deflator surprised to the upside
- Slight strengthening of the zloty, yields higher in reaction to US GDP

The coming week in Poland will be marked by a holiday break (May 1st and 3rd are public holidays), barbecues and reduced financial market liquidity. This does not mean that the economic calendar is completely empty. Locally, there will be two important publications: flash April CPI inflation on Tuesday and manufacturing PMI index on Thursday. In addition, on Tuesday, the government is expected to approve the Multiannual Financial Plan of the State with the forecast of public finances for 2024-27. Abroad, the list of events is longer: in Europe we will see, inter alia, ESI indices, first GDP estimates for Q1 in selected countries, preliminary data on April inflation, manufacturing PMIs; in the USA, the focus will be on Wednesday's FOMC decision and Friday's labour market data. On Thursday, the Czech central bank will decide on interest rates (...)

Retail sales rose 6.1% y/y in March, unchanged from February and below expectations (market: 6.9% y/y, us: 9.5% y/y). In seasonally adjusted terms, retail sales fell 0.2% m/m. The effect of purchases ahead of Easter and the normalization of VAT rates proved weaker than our forecasts, and the negative effect of working days did not help sales of durable goods.

Despite weaker-than-forecast data in March, retail sales for the whole 1Q24 increased by 5.0% y/y (+2.2% q/q sa), which is significantly faster than in 4Q23 (0.0% y/y). We remain quite optimistic about the outlook for consumer demand in the coming quarters due to good consumer sentiment and strong real wage growth. Following retail sales and industrial output data, we see significant downside risks to our GDP growth forecast for 1Q24 at 2.1% y/y.
 

While the decline in inflation in major economies has slowed and the market expects fewer rate cuts in the US and the euro area, inflation in Poland once again surprised on the downside and fell to 1.9% y/y, below target for the first time since May 2019. The next few months are likely to bring higher inflation readings, while core inflation is likely to remain elevated, in the 4-5% range until the end of 2025. Real wage growth accelerated to nearly 10% in February, the strongest since the late 90s, and nominal wage growth will remain in double digits in our view. This will contribute to the acceleration of consumption, which will be the main driver of growth. Activity data for February showed positive surprises in sales and industrial production. The prospect of a recovery in GDP (we expect 3% this year) and continued elevated core inflation and will make it likely that the MPC will not change rates until mid-2025.

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.