How strong was the economic growth in 2021?

Watch this week

January 26 – Unemployment rate to remain unchanged in December

We expect the unemployment rate to remain unchanged at 5.4% in December. In 2022, the pressure on the labor market will remain elevated, with low unemployment and strong wage growth. It remains to be seen whether the double-digit wage growth dynamics observed in December were affected by one-off factors or will stay with us for longer, undermining the central bank’s efforts to bring inflation back to the target.

January 26 – FY21 GDP growth to land at 5.5%

The COVID-19 pandemic resulted in Poland's first recession in 30 years, as GDP growth contracted by 2.5% in 2020. However, the economy recovered briskly, as it returned to its pre-pandemic level already in 2Q21 and continued to expand strongly in 2H21. Therefore, we expect FY21 GDP growth to reach 5.5%, but an upside surprise cannot be ruled out, due to the extremely good performance of the economy in the last quarter of 2021. Real economy data suggest that GDP growth could have reached about 7.0% y/y in 4Q21. Economic growth is set to ease this year toward 4.6% but the risk balance is tilted visibly to the downside. Private consumption is set to slow down due to rising costs of living. It remains to be seen to which extent the funds ‘released’ due to introduction of anti-inflation shield could boost household spending. The persisting supply-side bottlenecks, elevated commodity and oil prices, as well as slowing external demand and the ongoing dispute with the EU, are among the key risk factors this year.

Last week’s highlights

• Industrial production surged 16.7% y/y in December, bringing the FY21 average to 15.5%.

• Wage growth accelerated to 11.2% y/y in December, while employment growth stood at a meager 0.5% y/y.

• Construction output somewhat disappointed, as it came in at 3.1% y/y.

• Retail sales matched our expectations and arrived at 16.9% y/y in December, bringing the FY21 average to 12.5%.

Market developments

Bond market drivers – 10Y yield back fluctuates around 4.0%

While the beginning of January brought a global bond market sell-off, exacerbated by market bets for aggressive tightening of the monetary policy by the Fed, last week saw a slight correction on core markets and in Poland. The 10Y LCY yield dropped by 30bp from last week’s peak at 4.12%, reflecting the correction on the long end of the German Bund curve, where the 10Y yield decreased by around 8bp to -0.07%. As a result, the spread over the 10Y Bund narrowed to 390bp after hitting a decade-high last week. However, the comments from Governor Glapinski, which followed the release of strong industrial production and wage growth data for December, resulted in a turnaround on Monday morning. The 10Y yield initially jumped by around 20bp to 4.03% before decreasing to about 3.92%. The Governor pledged to more aggressive tightening than currently expected by the markets, which comes in contrast to his opinion from the press conference at the beginning of the month that rates should stabilize at about 3%. While 9x12 FRAs stood slightly below 4.0% on Friday, the comments pushed market expectations up by 45bp to 4.45%. We expect the National Bank of Poland to deliver 50bp rate hike to 2.75% at upcoming rate-setting meeting in February but in light of recent comments, a stronger move cannot be ruled out.

This week, the first regular bond auction of this year is scheduled. The MinFin plans to tap the market with up to PLN 6bn in papers maturing in 2024, 2026, 2027, 2031 and 2032. Following the switch auction held at the beginning of the month, Poland has already covered almost 50% of this year’s borrowing needs.

FX market drivers – Zloty strengthened since the start of the year

The stabilization of the US dollar and improved global risk aversion supported all CEE currencies, including the zloty. Since the beginning of the year, the PLN has gained as much as 1.4% against the euro. Despite the recent quite substantial strengthening of the zloty toward 4.50 vs. the EUR, we remain cautious and expect the PLN to return to the weaker side of 4.55 vs. the EUR in the coming weeks. We think that unclear interest rate outlook will remain a drag on the zloty. Recent pledge of Governor Glapinski to tighten monetary policy more than currently expected by the markets pushed EURPLN toward 4.56 on Monday morning. Moreover, the ongoing conflict with the EU and geopolitical risks related to the potential conflict between Russia and Ukraine remain a negative factor for the PLN.

This week, the global markets will focus on the FOMC meeting as indications are expected as to when the first rate hike can be delivered. At the beginning of the year, a number of FOMC members argued for an early first-rate move. This bias should be confirmed at upcoming meeting and a clear indication for a rate hike in March is expected.

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