Economic comment

Construction production decreased by 9.6% y/y in October, after -9.0% y/y in September, and amid expectations for reduction of the decline to 6-7%. The reading comes at a time of heightened concerns about Polish's economic outlook following weak data on activity in September and a lower-than-expected flash estimate of 3Q GDP. However, we expect a significant rebound in the other two key monthly data items, industrial production and retail sales, due early next week. The GUS consumer survey for November, with the second consecutive decline in optimism, was also not encouraging.

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.

In today’s speech the NBP president Adam Glapiński returned to his earlier forward guidance for monetary policy outlook focused mainly on future behaviour of the headline CPI inflation. (...) However, we still believe that the development of economic growth in the coming months/quarters may be even more important for the MPC’s reaction function than the CPI trajectory, even if the rhetoric of the NBP Governor is currently different. If we see signals in the next data indicating that the GDP outlook continues to deteriorate, the likelihood of earlier cuts will increase. However, as long as the economy grows at a rate close to its potential (c.3% y/y) – which is in line with our current forecasts and the NBP projection – the MPC will most likely prefer to wait with the first cut until inflation stops trending up. Therefore, we remain of the opinion that rate cuts will start closer to mid-2025 rather than to March. (...)