A Rising Tide Lifts our Boat


Polish Economy and Financial Markets.

In January's MACROscope:

  • The process of upward revisions of economic forecasts for Poland continues as the local economic data still provide positive surprises and the global economic outlook is also improving, with economic climate indicators climbing to record high levels. Recently the World Bank has lifted its GDP growth forecast for Poland to 4.5% in 2017 and 4.0% y/y in 2018, which is in line with our view presented in the 2018 Outlook in December. The first estimate of GDP growth for 2017 will be released at the end of January and, although we keep our forecast unchanged since December, we would not rule out another positive surprise as GDP growth in the final quarter of last year could have remained close to 5% y/y.

  • The situation on the labour market remains a big puzzle. Although the rising share of companies are complaining that the supply of workers is drying up and the shortage of labour is the top obstacle constraining their business expansion, the statistical data show that employment growth not only remains strong but even accelerated in recent months. According to the Social Insurance Institution (ZUS) the number of new old-age pensions granted after the reduction of retirement age exceeded 300k, which implies – according to our estimates – that at least 90k people had to quit their jobs at least for a while. And yet, this has failed to disrupt the positive trend in employment. Possibly, vast majority of new retirees resumed the professional activity very shortly (even one day) after getting the pension eligibility. Another explanation could be higher inflow of workers from Ukraine or a rise in labour participation rate. Nevertheless, we still expect that building labour market pressures will push wage growth up significantly this year, even to double-digit levels.

  • The headline inflation rate has dropped in December to 2.0% from 2.5% y/y in November, in line with our forecast and due to very high base effect. We think that the statistical effects will keep affecting inflation this year, and after a temporary rise above the 2.5% target in mid-year, the CPI growth will descend once again towards 2% by year-end. At the same time, core inflation should be mounting gradually throughout the year, to c.2% y/y in December.

  • The fluctuation of the headline inflation in 2018 without a clear upward trend will be probably a good enough excuse for the central bank to keep interest rates on hold for as long as possible. The January MPC’s press conference was a show of dovishness and we still assume the first rate hike to take place not earlier than in November 2018.

  • The zloty was gaining at the turn of the year amid high demand for risky assets. However, early 2018 saw Polish currency giving up part of recent gains mainly owing to stronger dollar, in our view. We expect this trend to continue in the weeks to come as the US currency might become stronger in the short term.

  • Core debt markets started 2018 with rising yields, while Polish bonds remained more stable. We expect strengthening of short-term and floating-coupon bonds in the coming weeks, due to dovish MPC rhetoric and limited bonds supply in January. Long end of the curve may remain under pressure of situation on the core markets.


Keywords: BZWBK, macroscope

Author: BZWBK Price: Content is free of charge