Economy back at pre-pandemic levels
2Q21 GDP growth confirmed the ongoing recovery of the Polish economy, as GDP is back at the pre-pandemic level of 4Q19. While private consumption rebounded visibly, marking strong double-digit dynamics, investment activity was somewhat weaker than expected. Nevertheless, given the better than expected performance of the Polish economy in 1H21, we revised our FY21 growth forecast up by 0.5pp to 5.3% and FY22 by 0.2pp to 5.6%. The pandemic development in the remainder of the year remains the key risk factor. Although we do not expect any strict country-wide measures to be introduced in the autumn, the easing of the global rebound and supply-side bottlenecks could weigh on activity in the coming months.
After hitting a two-decade high in August at 5.4% y/y, headline CPI is expected to stay above the 5% mark until the end of the year. Thus, FY21 inflation should average 4.4%, before easing marginally toward 3.9% next year. Despite CPI staying outside the tolerance bands, the National Bank of Poland is sticking to its dovish rhetoric and keeping the policy rate unchanged at 0.1%. We think that policy normalization will likely be delayed to 1Q22 at the earliest, but further postponement cannot be ruled out, given the end of the term of the current MPC in June 2022. We expect a 15bp hike to be delivered in March 2022.
Both global and local factors will continue to weigh on the PLN. The dovish stance of the NBP relative to other regional central banks, coupled with the looming conflict with the EU over judicial reform and the delay in the acceptance of the Polish Recovery Plan, as well as local political tensions, remain key negative factors for the PLN. The first tightening steps could be delivered at the earliest in 1Q22 and should provide some support for the zloty.