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2020/07/27 / Erste Group Research

Poland Weekly Focus | Inflation to ease in July

Flash inflation for July should land at 3.1% y/y due to slowing food prices and low oil prices. Core inflation should remain elevated due to pressure in services sector. Bond and FX market to focus on global events: FOMC and flash GDP releases for 2Q20 in EU and Eurozone.

July 31 | Inflation to ease in July. We expect flash inflation to land at 3.1% y/y (0.1% m/m) in July, in line with market expectations. In our view, easing food prices dynamics as well as still low oil prices should counterbalance the high prices of services. Elevated price pressure in the services sector should be the main factor behind core inflation remaining high at 4.1% y/y in July.

July 31 | How strong will impact of pandemic be on 2Q20 GDP growth in EU, EA and Czechia? Flash estimates of 2Q20 GDP growth for the EU, Eurozone and Czechia will provide the first insights into the extent of the havoc caused by the pandemic. All readings are expected to be deeply negative, with high uncertainty. In Czechia, a double-digit contraction in annual terms cannot be ruled out. Flash readings will allow us to estimate the possible drop in GDP in the non-euro area countries.

Bond market drivers | 10Y yield still below 1.4%. Despite some intra-week moves, 10Y yields remain locked below 1.4%. While in the first half of the week, the long end of the curve went down below 1.3%, the remainder of the week saw upward movement and the 10Y yield increased by 6bp to 1.36%. The spread over the 10Y German Bund also remains stable at around 180bp. This week, BGK will hold its third bond auction this month. State-owned development bank BGK has so far issued papers worth PLN 65.4bn to obtain financing for its COVID-19 fiscal response. Moreover, the MinFin will this week announce the planned bond supply for August.

FX market drivers | Sharp appreciation of zloty. On the back of the EU recovery fund deal and better than expected real economy data for June, the zloty appreciated and the EURPLN went sharply down toward 4.40. The weak US dollar also supports the zloty. However, we expect to see a correction for the zloty and continue to see the EURPLN at 4.44 by the end of 3Q20. The publication of flash estimates for 2Q20 GDP growth in the US and Eurozone this week should tame the recent market optimism.

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General information

AuthorErste Group Research
Product nameCEE Country Update
Topic in focusMacro/ Fixed income
Economy in focusPoland
Currency in focusPolish Zloty
Sector in focus-


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