Poland: Industry is expected to grow by 6.5% y/y in July

This week, industrial production and retail sales data should indicate how much the economic slowdown should be feared. We expect a rebound of growth dynamics in July, after a weak performance in June. Labor market data (wage growth and employment) should confirm good conditions. The FX and bond markets are to remain under the global influence, as Fed Chairman Powell's speech at the Jackson Hole Symposium is scheduled this week.

This week:

• August 20: Employment to keep growing, wage growth to accelerate (6.7% y/y) in July

Labor market conditions have been constantly improving. The unemployment rate is historically low, while employment keeps growing at a sustained pace of slightly below 3%. Nominal wage growth should rebound toward 7% y/y in July, after weak growth of 5.3% y/y in June.

• August 21: Industry is expected to grow by 6.5% y/y in July

After a particularly weak performance of industry in June (-2.7% y/y), the market expects industrial output growth to rebound to 6.5% y/y in July. This is in line with our scenario as well, as a positive calendar effect should support the July number. Market sentiment, however, remains weak. The PMI index has been below 50 for a couple of months already, while local sentiment indicators are also in a downward trend. If industry disappoints, expectations for a bigger slowdown in the second half of the year may arise more visibly.

• August 22: Retail sales to accelerate to 7.0% y/y in July (vs. consensus at 7.8% y/y)

Retail sales data in July should accelerate toward 7% y/y, after slowing in June. Apart from the effect of more working days, the expectations for continuously high spending in the months to come is related to another round of fiscal easing. Weaker than expected retail sales growth may question the strength of the private consumption growth in the third quarter, weighing on growth expectations as well.

Last week's highlights

• GDP growth in 2Q maintained solid dynamics at 4.4% y/y, despite worsening external environment.

• Core inflation picked up to 2.2% y/y in July, after headline inflation was confirmed at 2.9% y/y.

Bond market drivers

• Polish 10Y yield hit historically low level of 1.73%

The long end of the curve continued its downward trend last week and the 10Y yield hit the historically low level of 1.73%. The move was accompanied by a narrowing of the spread vs. Bunds. Although the beginning of the week brings a slight rebound, 10Y yields are expected to remain below 2% in the nearest future. This week, domestic data on industry and retail is important to watch, as it will likely set the mood for the third quarter economic development in Poland. As far as global events are concerned, Fed Chairman Powell's speech at the Jackson Hole Symposium will set the tone for markets. 

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

The capital gains everywhere but Croatia are behind the 0.7% return on 5Y LCY bonds. Romania and Poland were the two countries with the highest returns, despite the somewhat unfavorable FX development. On top of that, spreads continued to tighten in Poland and Hungary last week, more than just following the plummeting of global yields.

FX market drivers

• Weak zloty

Global trade disputes are pulling local currencies onto a rollercoaster ride, with some of them seeing separate moves in their own right. The EURPLN moved sharply to 4.37 on Wednesday, also likely due to the illiquidity last week. It already started to reverse at the end of the week, but EURPLN moved back toward 4.37 on Monday. In general, the FX market remains under global influences, so Fed Chairman Powell's speech at the Jackson Hole Symposium is likely to be the key event.

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