Focus Poland - Economy slowed down in 2019

Flash estimate of FY19 GDP growth to be in focus. We see figure at 4.2%. Slippage towards 4.1% cannot be ruled out, due to weaker than expected industrial performance in December. Markets to watch for news concerning judicial reform.

 

Watch this week

January 29 | Economic growth to slow down in 2019

We expect the flash estimate of 2019 GDP growth to be 4.2%, down from 5.1% in 2018. Weaker than expected performance of industry at the turn of the year could have dragged GDP growth below 3.5% in 4Q19. Our now-casting model suggests GDP growth at 3.6% y/y in the last quarter of 2019. Therefore, slippage of the FY19 figure to 4.1% cannot be ruled out. We expect the economy to further cool down this year, as we see FY20 growth at 3.4%.

 

Last week's highlights

December's labor market data in line with expectations, with wage growth at 7.2% y/y, employment up by 2.6% y/y and unemployment rate at 5.2%.

Industrial production growth disappointed in December, as it came in at 3.8% y/y, while retail sales kept up strong dynamics of 7.5% y/y.

 

Market developments

Bond market drivers | Long end followed global news

The long end of the Polish curve peaked at the beginning of the week close to 2.35% and moved towards 2.25% over the course of the week, reflecting global developments. Market uncertainty related to the spread of the coronavirus, as well as comments from Christine Lagarde that there are still downside risks to the Eurozone economy, pushed safe haven assets down. The 10Y German Bund dropped by 15bp to -0.35% over the week. As a result, the spread over the 10Y Bund has widened further and stands close to 260bp. That is the highest level since the end of September 2019. This week, the flash estimate of 2019 GDP growth is not likely to attract the attention of the market, unless the figure lands visibly below market expectations. Investors could be watching for news regarding the rule of law.

FX market drivers | Supreme Court ruling pushed EURPLN up

On the back of weaker than expected economic data as well as the ruling of the Polish Supreme Court concerning the judicial reform undertaken by Law and Justice in 2018, the EURPLN weakened to 4.26. Last week's ruling calls into question the independence of the National Council of the Judiciary (KRS) and is in conflict with government opinion. The decision of the Supreme Court could inflame the ongoing dispute between the Polish government and the European Commission regarding the rule of law. We expect the zloty to focus mainly on local news this week. We expect the EURPLN to be at 4.28 at the end of 1Q20.

 

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