Poland: Expect retail sales to sustain solid growth of around 7% y/y in July

We expect retail sales to sustain solid growth of around 7% y/y in July, supported by strong wage growth. Unemployment rate most likely to remain at historically low level of 5.9% y/y in July. This week's macro releases should be neutral for bond market. Zloty to remain affected by global sentiment.

This week:

• August 22: retail sales to sustain solid growth in July

We expect retail sales growth to arrive at 7.5% y/y in July (market consensus stands at 9.5% y/y). Solid growth of wages (up by 7.2% y/y in July) supports household spending, which in turn supports retail sales. In the period from January to June 2018, retail sales growth has been marginally lower than in 2017, as it increased by almost 8.0% y/y vs. 8.5% y/y the year before. We see retail sales growth at 7.5% y/y in 2018. Hence, private consumption will remain one of the main GDP growth drivers. The detailed structure of GDP growth in 2Q18 will be published at the end of the month. The retail sales figure for July will enable us to run the now-cast model for GDP growth and we might revise our FY18 growth forecast upwards.

• August 24: unemployment rate to remain at record low level

We see the unemployment remaining at the record low level of 5.9% in July. Despite somewhat disappointing figures regarding the growth of employment (up only by 3.5% y/y in July), the unemployment rate should remain stable, supported by seasonal factors.

Last week's highlights

• Industrial production surprised market to upside and arrived at 10.3% y/y in July

• Flash estimate of 2Q18 GDP growth arrived at 5.1% y/y

• Flash CPI confirmed at 2.0% y/y in July

• Wages increased by 7.2% y/y in July, whereas employment grew by 3.5% y/y

 

Bond market drivers

• 10Y yields remained stable at around 3.15%

The long end of the curve remained rather stable last week after the significant change that had been observed the week before due to Turkish lira turbulence. The 10Y yield fluctuated around 3.15%, with a marginal decrease toward 3.14% at the end of the week. The spread vs. 10Y German Bund remained stable at around 283bp. This week, local macro releases should remain neutral for the bond market.

• Weekly performance of 5Y bonds (% in EUR)

Last week, the LCY CEE bond market did not move much w/w, apart from in Romania, where yields increased on the long end, resulting in negative performance of 0.6% (in EUR). Short-term rates development remains mixed across the region. In the Czech Republic, the next rate hike is expected at the meeting in late September, while the MNB will most likely maintain its flat rate policy at this week's meeting.

FX market drivers

• Zloty moved around 4.31 vs. EUR

The Polish zloty remained resilient to pressure during the last week of turbulence experienced by the Turkish lira. The public holiday on Wednesday last week limited supply, which caused the zloty to move above 4.34 vs. the EUR. However, it moved toward 4.31 during the second half of the week. Moreover, the weaker USD and local macro releases (GDP and inflation figures) were zloty-positive. The zloty will most likely remain affected by global sentiment this week.

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