Poland: Solid 1Q21 GDP growth despite restrictions

Solid 1Q21 GDP despite restrictions: We expect 1Q21 GDP growth to arrive at -1.4% y/y (+1.1% q/q s.a.), in line with market expectations. Surprisingly strong March real economy data lifted the average quarterly industrial production and retail sales growth visibly up. Despite restrictions being in place for most of the 1Q21, that mainly affected retail and services sectors, retail sales accelerated to 2.8% y/y from -2.7% y/y observed in 4Q20. On the other hand, average industrial production came in at 7.4% y/y in 1Q21 compared to 5.8% y/y in 4Q20. All in all, Polish economy became much more resilient to the containment measures and we expect 1Q21 to be the last quarter with negative annual growth dynamics. However, a positive surprise cannot be ruled out - it might come from higher contribution from inventories and/or the trade balance.

Bond market drivers: 10Y yield moved close to 1.7%. Following the strong yield increase at the end of April, the 10Y LCY yield stabilized and moved in a narrow range between 1.65-1.7% last week, mirroring the core market development. As a result, the spread against the 10Y Bund remained unchanged at around 190bp. According to the MinFin, Poland has already covered 67% of this year’s borrowing needs after last week’s switch auction. Today, state development bank BGK sold papers worth around PLN 4.4bn within the first auction this month. So far this year BGK issued paper worth close to PLN 18.5b, while the maximum issuance for this year is planned to reach PLN 33.2bn. This week, NBP will hold the first this month QE operation.

FX market drivers: Increased volatility of the zloty. Over the course of the week, the zloty has been characterized by increased volatility which might prevail also this week. Stronger US dollar in the first half of the week and uncertainty about the Supreme Court ruling on CHF loans pushed EURPLN toward 4.58. However, weaker than expected April labor market data in the US were negative for the USD, which depreciated sharply on Friday. Dollar development coupled with the Supreme Court decision on CHF loans, which can be seen as favorable for the banking sector, were positive for the zloty as EURPLN moved towards 4.55 at the end of the week. This week, zloty might stay volatile as another Supreme Court ruling on May, 11 could provide further guidance on the FX mortgage issue.

Download the full report