As Good As It Gets


Polish Economy and Financial Markets.

In September's MACROscope:

  • As we are slowly approaching the end of the third quarter, it looks like the Polish economy is still expanding at a solid rate, close to 4% per annum. The structure of 3.9% y/y GDP growth in 2Q17 remained sub-optimal, as it was boosted mainly by the private consumption and stock building, with investments remaining stagnant (only 0.8% y/y growth despite very low base, driven almost entirely by dwelling construction). However, we expect to see a more pronounced investment rebound in the coming quarters, with higher public spending being the initial driver and private sector joining later on. The most recent high-frequency indicators seem to confirm it, showing a surge in construction output and still decent economic activity in 3Q17.

  • Nevertheless, we still argue that the room for further acceleration of economic growth in Poland remains limited. We have signalled in the past that the shortage of workers may become a bottleneck for growth in the not-so-distant future, and in fact the recent weeks brought a quickly mounting evidence that the labour shortage is already constraining the firms' activity. One possible consequence of this situation is a significant rise in the wage pressure, another is a moderation of GDP growth, especially after the reduction of the retirement age in October pulls out thousands of people from the labour market.

  • Inflation rate has inched up again, mainly due to higher prices of food and fuels, while the underlying price pressure remained subdued (core CPI below 1%). Given the likely acceleration of wages, it is reasonable to expect that inflationary trends will be picking up in the coming quarters, but we still do not expect the CPI to hit the 2.5% official target before 2019.

  • We still think the Polish central bank will keep monetary policy unchanged as long as possible, even until 4Q18. While some MPC members have recently started calling for a sooner policy normalisation, the vast majority is still supporting the status quo. The balance of views may start changing only after the labour market data clearly confirm that wage growth is sharply accelerating.

  • The government's draft budget for 2018 assumes a moderate widening of the deficit, which is quite unfortunate given the good economic cycle, but this year will probably end up with the fiscal gap much below plan. As a result, the fiscal outlook is unlikely to unnerve investors or rating agencies in the near future.

  • The EURPLN was quite volatile in August, driven by geopolitical risks, solid domestic and global macro data, and dovish central banks' rhetoric. We expect to see zloty strengthening in the near term amid positive global sentiment and good economic fundamentals. The PLN may depreciate at the end of the year if the FOMC delivers another rate hike (currently not priced by the market).

  • We anticipate the downward pressure on yields on domestic debt market to continue until the end of the month owing to low government borrowing needs and good global mood.


Keywords: BZWBK, MACROscope

Author: BZWBK Price: Content is free of charge