Poland Weekly Focus | July data to confirm ongoing recovery
Real economy data for July to prove solid performance of economy at start of 3Q21. Industrial production and retail sales to post another month of solid growth dynamics. Increased political tensions could continue to weigh on PLN. Central bank to hold QE auction.
August 18 | Solid labor market statistics. July should bring another month of solid wage and employment growth figures, which reflect the ongoing recovery on the labor market and are still affected by the low base from last year. We expect wage growth to land at 9.1% y/y, while employment growth should reach 2.0% y/y. Although employment support measures have mostly been withdrawn, the situation on the labor market continues to improve.
August 19 | Industrial production to sustain robust growth. We expect industrial production to sustain double-digit growth dynamics in July, as we see it at 11.7% y/y, somewhat above market expectations of 10.1% y/y. While strong sentiment should support the performance of industry, negative calendar effects (-1WD) and supply-side bottlenecks could weigh on the headline figure. All in all, industry should sustain robust growth in 3Q21.
August 20 | Retail sales growth to ease in July. At the start of 3Q21, retail sales might lose some of its strong dynamics, but we nevertheless see it at 10.4% y/y, somewhat more optimistic than the market consensus of 8.1% y/y. The solid labor market and improving sentiment should support household spending.
Bond market drivers | 10Y yield back at around 1.7%. Over the course of the week, the long end of the Polish LCY moved gradually toward 1.75%, while the 10Y German Bund was locked around -0.46%. However, since the beginning of the month we observed decoupling of the 10Y Polish yield from the core market developments. Thus, the spread against 10Y German Bund widened substantially and last week hit almost 230bp, the highest since the outbreak of the pandemic in March 2020. Such divergence could be explained by expected monetary tightening in Poland, amid stable outlook for the ECB. This week’s macro releases should not have any strong impact on the local bond market, as those should confirm ongoing recovery. The markets will monitor the NBP’s auction for hints about the possible end of asset purchases.
FX market drivers | EURPLN locked above 4.55. Since the beginning of the month, both global and local factors continued to weigh on the zloty, which returned above 4.55 vs. the EUR. We think that the dovish stance of the National Bank of Poland relative to other regional central banks, coupled with recent conflicts with the EU and the US over judicial reform and media freedom are weighing on the PLN. Following last week’s decision of one of the junior coalition parties to leave the government and the passing through the parliament of the controversial reform of the media act, local politics could this week still have a negative impact on the FX market.