Poland: Growth dynamics to lose some color

November 12 | NBP to publish inflation and growth report

The National Bank of Poland will publish its November inflation and growth report. The basic assumptions and findings were discussed during the press conference after last week's MPC meeting. The projection was prepared with the assumption of stable rates in Poland and unfreezing of energy prices for households next year. Therefore, energy prices should increase by around 8% y/y in 2020. Inflation should be marginally higher compared to the July projection. CPI should land at 2.3% in 2019 (2.0% as of July) and at 2.9% in 2020 (2.8% as of July). Economic growth is expected to be slightly slower than previously anticipated. GDP growth should arrive at 4.3% in 2019 (vs. 4.5% as of July) and at 3.6% in 2020 (vs. 3.9% as of July). The November forecast is mostly in line with our expectations for this and next year.

 

November 14 | Growth to lose some momentum

We expect GDP growth to somewhat ease in 3Q19, to 4.0% y/y (1.0% q/q), in line with market expectations. Domestic demand should remain the key growth driver, as evidenced by solid retail sales growth, which is benefitting from the tight labor market. However, weaker industrial production will likely weigh on the overall growth figure. The trade balance narrowed in 3Q19 compared to last year, suggesting a positive contribution to growth in 3Q19. All in all, we see GDP growth at 4.2% in 2019.

 

November 14 | October inflation to be confirmed

We expect the flash inflation reading for October to be confirmed at 2.5% y/y. The headline figure arrived at the target for the first time in half a year on the back of lower food price growth and dropping oil prices. Moreover, we expect core inflation to slightly increase and land at 2.4% y/y.

 

Last week's highlights

• MPC kept rates unchanged at 1.5%, as broadly expected.

 

Market developments

Bond market drivers | 10Y yield jumps above 2.2%

On the back of improving global sentiment and increasing prospects for a resolution of the trade war between the US and China, yields on core markets went significantly up. The 10Y German Bund increased by 10bp, while 10Y US Treasuries jumped by an impressive 20bp. The Polish local curve followed core market developments and the long end of the curve surged by almost 20bp, testing July's highs of close to 2.25%. As a result, the spread over the 10Y Bund widened by more than 10bp to 244bp. If improved market sentiment persists, we see risks to the upside to our current year-end forecast of 1.95%. The bond market will closely watch the 3Q19 GDP growth release. In the event of a negative surprise, we could see the long end of the curve going down.

FX market drivers | Zloty weakened marginally

Over the course of the week, the zloty weakened somewhat against the EUR and the EURPLN went slightly above 4.27. Bearing in mind the recent strong appreciation of the zloty, we revised our year-end forecast and see the EURPLN at 4.30 by the end of the year. We believe that the flash GDP release will likely be a non-event for the zloty and the EURPLN will focus on global developments and trade war news.

 

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