December real economy data for Poland

This week in CEE

This week will be relatively empty for data releases in CEE. Besides some labor market statistics for Croatia, Poland, and Slovakia, the December retail sales for Poland will be disclosed as well. As Poland eased restrictions at the beginning of December, we expect improvement of retail sales y/y dynamics towards -0.8% in December, from the -5.3% y/y reported in November. Given that industry has been performing well during the second wave, we see clear upward risks to our 2020 GDP growth forecast, which stands at -3.3%. Depending on the outcome of retail sales and industrial output in December, full-year growth could be actually 0.5-1.0pp better at the end. We will already know next week, when not only industrial output is due, but also 2020 GDP growth will be reported for Poland.

CEE Recovery Index After a sharp drop during the holiday season, the CEE Recovery Index inched up at the start of the year. The increase of the index came mostly from improved mobility in the first week of January. Mobility went up across all categories, with the biggest advancement in mobility to the workplace. We think that mobility could improve in the coming weeks, despite the restrictions still in place across the CEE region. Although the vaccination process has only started in CEE, this is likely to be another positive factor supporting recovery in the coming months. On the other hand, air pollution dropped marginally at the start of the year. Due to issues with data availability, we removed for the time being electricity consumption component from the calculation.

FX market developments

Friday afternoon was not at all boring in CEE. As for Poland, Governor Glapinski said at his Friday press conference that the NBP's intention is to prevent an appreciation of the zloty. This may mean no further depreciation, but a lasting appreciation of the PLN should not start anytime soon either. The NBR also cut the policy rate in an unexpected move by 25bps, slightly weakening the RON. On the other hand, Vice Governor Virág said (still earlier last week) that he does not see the MNB engaging in a "currency war" in Hungary. Our take is that, should there be any factor that could push CEE currencies stronger, the HUF may react, but the PLN will likely by prevented from firming.

Bond market developments

Central bankers seem to somewhat diverge in their views in the region. The NBR cut the policy rate on Friday by 25bps to 1.25%, and we see another cut to 1% after this move. The NBP has also been somewhat dovish as of late, although Governor Glapinski's words suggest rate easing only as a last resort, should the pandemic situation worsen that much. Meanwhile in Hungary, central bankers warned about cautious monetary policy. Bond market presence should be maintained, however, according to MNB. As the central bank has nearly exhausted its 50% threshold on the long-end, shorter tenors may also be purchased. This could be a reason why we saw the shorter segment of the HGB curve reacting less to the news that last year's cash deficit was around 12% of GDP, much higher than expected.

In case you missed

CEE: In December, inflation inched up in SK. It remained unchanged in HU, while it went down in RO, CZ, RS and HR.

PL: Central bank remained on hold. Press conference of Governor Glapinski.

RS: Key rate remained at 1.0%.

RO: Central bank unexpectedly cut target rate by 25bp to 1.25%. Weaker industry in November.

SK: Industry surprised to upside in November.

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