BZ WBK MACROscope - Take it easy CORRECTED
In February's MACROscope:
- Central banks around the world are on a monetary easing spree: At least 17 have eased policy so far in 2015. The most significant move was probably that of the European Central Bank, which decided to expand its QE programme from March on a bigger scale than anticipated. Other banks followed, taking steps aimed mainly at driving down the value of their currencies. One striking exception was the Swiss National Bank (SNB), which abandoned the 1.20 floor for EURCHF, triggering a sharp currency appreciation. The decision sent ripples of volatility through the financial markets and raised concern about countries with sizeable CHF debt exposures, like Poland. While several proposals of how to ease the situation of CHF-indebted households are still under discussion, we argue that the economic impact of the Swiss franc appreciation on Polish households is unlikely to be large and the outlook for private consumption in 2015 remains optimistic.
- Poland’s Monetary Policy Council (MPC) kept interest rates on hold in February, but it also made it clear that a rate decision is getting closer and that a cut, or cuts, could exceed 25bp. The change in the MPC’s rhetoric, larger-than-expected QE in the Euro zone and the recent policy easing by other central banks around the world have convinced us that Polish interest rates could come down 50bp this year. A rate cut in March is very likely, in our view. While a 50bp rate cut in one move cannot be ruled out completely, we think that two cuts of 25bp each are more probable, unless uncertainty over Greece and Ukraine fades significantly and economic data surprise to the downside.
- There are many signs that the Polish economy is faring better than expected. GDP growth in 2014 was 3.3% (probably one of the highest in Europe), fuelled by robust private consumption and booming investment. The labour market is in full swing. Indicators of consumer and business climate are still heading north. S&P recently upgraded Poland’s sovereign rating outlook to positive, highlighting its sound growth prospects, while, according to a PwC report, the ‘World in 2050’, Poland will be the fastest-growing economy in the EU in the next few decades. We still expect a slowdown in Poland’s economic growth at the start of 2015, but it should be relatively mild and short-lived. Recent data suggest that the economic outlook in the Euro zone is improving, helped by lower oil prices, the weaker euro and the ECB’s QE.
- Recent central bank decisions and geopolitical tensions caused high volatility in the financial markets. The zloty depreciated and fixed income markets experienced a correction after a long rally. We expect Poland’s currency and bonds to stabilise in the near term and rebound in the coming months, as global risk aversion fades.