Koruna up on GDP, Polish presidential elections in focus

The Central European economies are growing very swiftly – this is the rather expected message from last week. However, what was not expected and what is also evident from the appreciation of the Czech koruna is the very high growth rate of the Czech economy – almost 4% y/y in the first quarter, a rate which the other Central European countries have lagged behind in early 2015. Admittedly, certain specific factors, such as (cigarette) stockpiling, contributed to the excellent growth of the Czech economy, yet the figure is outstanding.

The robust growth of the Central European economies, exceeding 3%, evokes memories of the convergence story experienced by the region until the global financial crisis. At that time, Central Europe was visibly growing faster than the euro area, and therefore the regional economies and markets were very attractive to investors. If average growth in Central Europe in the quarters to come clearly outpaces that of the euro area – which is our baseline scenario – we can expect that the convergence story will be increasingly cited on markets, and regional assets may ‘outperform’ their counterparts (emerging markets).

However, this week will be about politics rather than macroeconomic data – specifically about the second round of the presidential election in Poland. After the surprising result of the first round, the candidate (Andrzej Duda) for the opposition Law and Justice (PiS) party has continued gaining in popularity. His victory may be unpleasant for the zloty for two reasons. Firstly, it would significantly increase the likelihood that the less market-friendly conservative PiS will also win the more important election to the lower house of the Polish parliament (Sejm) scheduled for the autumn. In addition, it would threaten the possible re-election of M. Belka as governor of the NBP. Recall that his term expires next year. Hence, Duda as the eventual president would probably propose to the Sejm a new NBP governor whose opinions are closer to those of the PiS.