Poland: We expect wage growth of 6.5% y/y

Some macro figures are due this week in Poland. We expect wage growth to remain solid and arrive at 6.5% y/y in September. Industrial production is expected to slow down to 3.3% y/y, mostly due to calendar effects, but sentiment also lately decreasing. Finally, retail sales are expected to sustain solid growth and increase by 8.5% y/y. Global sentiment and EURUSD development to impact Polish zloty.

 

This week:

• October 16: We expect wage growth of 6.5% y/y

Unlike the market, which sees wage growth to increase by 7.1% y/y in September, we expect the growth dynamics to slow down to 6.5% y/y in September from the 6.8% y/y observed a month ago. The situation on the labor market remains favorable, with a low unemployment rate, but the underlying trend on wage growth seems to have stabilized at around 7% dynamics. Solid wage growth is, if it continues, expected to eventually translate into inflationary pressure.

• October 17: Industrial production to slow down to 3.3% y/y

Given the calendar effect (one working day less vs. 2017) and worsening market sentiment (PMI dropped to 50.5 in September), we see industrial production growing by only 3.3% y/y in September and sustaining the recently observed downward trend. The PPI is likely to remain rather stable and increase by 2.9% y/y in September.

• October 19: Retail sales to sustain solid growth dynamics

We expect retail sales growth to marginally slow down to 8.5% y/y in September, from 9.0% y/y in August, against the market consensus of growth of 8.1% y/y. We remain fairly optimistic about retail sales growth, as the overall level of HH spending is supported by the favorable situation on the labor market and solid wage growth.

 

Last week's highlights 

• S&P upgraded Poland from BBB+ to A- with stable outlook, based on robust economic growth and favorable fiscal position

• Final CPI revised upwards to 1.9% y/y in September

 

Bond market drivers

• 10Y yields moved toward 3.2%

Over the course of last week, 10Y yields went down by 8bp to 3.22%. The long end of the curve followed global developments and continued to move further down, most likely supported by the rating upgrade. The spread vs. 10Y German Bunds held slightly above 270bp last week, which is slightly below the 1Y average of 280bp. This week, local macro releases will most likely be neutral for the bond market, unless there is a strong surprise in the data that would suggest a bigger slowdown in the economy than is currently expected. Some slowdown in industrial production is anticipated, so the figure should have no major impact on current medium-term growth expectations.

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

The LCY bond market reported an overall positive return of 0.14% (in EUR). The Polish LCY bond market was the best performer last week, with an overall return of 0.61% (in EUR). Zloty appreciation and the decrease in yields contributed to the positive return in Poland. On the other hand, the LCY bond market in Hungary and Romania reported a negative return of 0.66% and 0.55% (in EUR), respectively. In Hungary, 10Y yields increased by 20bp over the week due to risk-off mode on global markets, which might be seen as an interesting development before the MPC meeting on Tuesday.

 

FX market drivers

• Zloty holds stable despite global disturbances

Regional currencies were stable vs. the EUR last week. The EURPLN remained stable and hovered around 4.30. The zloty was rather resistant and did not undergo any serious correction after the stock selloff in the US and movement of the EURUSD. The S&P rating decision had no significant impact on the zloty. This week, retail sales data in the US and the EU summit, at which the current situation regarding the Brexit negotiations will be discussed, will most likely have an impact on both EURUSD development and the zloty.

 

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