Poland Weekly Focus | Inflation to exceed 7% margin in November
Flash inflation for November to be key release this week. We expect it to accelerate to 7.5% y/y. Flash estimate of 3Q21 GDP growth to be confirmed at 5.1% y/y. Markets to focus on inflation data and pandemic development.
November 30 | Inflation to continue to rise in November. We expect flash inflation for November to accelerate to 7.5% y/y (0.7% m/m) slightly above the market consensus of 7.3% y/y. In our view, higher fuel and food prices, as well as rising core inflation, will push the headline figure above the 7% margin. We expect the CPI to peak slightly below 8% y/y in December before easing at the beginning of the year following the announcement of tax cuts under the anti-inflation shield. All in all, we see inflation on average at 5.0% this year and at 6.0% in 2022. The November reading will be an important factor ahead of next week’s central bank decision.
November 30 | 3Q21 GDP growth to be confirmed. We expect the flash estimate of 3Q21 GDP growth to be confirmed at 5.1% y/y (2.1% q/q s.a.). In our view, domestic demand, especially private consumption, was the key growth driver in the previous quarter. It remains to be seen to what extent investments recovered following weaker than expected dynamics in 2Q21. Net exports likely remained a drag on the headline figure, as imports outpaced exports. All in all, we see FY21 GDP growth at 5.3% before slowing down to 4.8% next year.
Bond market drivers | Uncertainty weighed on long end. Over the course of the week, the long end of the Polish LCY curve remained anchored at 3.40%, while the spread against the 10Y German Bund narrowed to 350bp. Information about the new coronavirus strain, which could hamper the global recovery, pushed the 10Y yield down by 30bp to 3.1% at the end of the week. This week, the markets will closely watch the inflation data for November. Should the inflation figure once again come in above the market consensus, the 10Y yield might return to an upward trend. Besides local macro releases, the labor market report for November will be released in the US, while auctions scheduled for December will be released by the MinFin, National Bank of Poland and BGK. According to the quarterly plan, the MinFin should hold one regular auction on December 9.
FX market drivers | Zloty remains volatile. Governor Glapinski’s comments that the central bank will not tolerate further depreciation of the zloty had only short-lived impact on the currency, as information about the new coronavirus strain initiated a market sell-off at the end of the week. In the governor’s view, further declines of the PLN would be inconsistent with the country’s economic fundamentals. This week, flash inflation and global pandemic development will be the key drivers for the PLN.