Poland Weekly Focus | How did Poland perform at end of 3Q21?
Real economy data for September due this week in Poland. Labor market statistics to show strong wage growth, while employment growth expected to slow down somewhat. Industrial production to ease due to supply-side issues. Retail sales to remain solid.
October 19 | Mixed labor market data. We expect the September wage and employment growth statistics to show a mixed picture for the Polish labor market. While wages are expected to sustain strong close to double-digit growth dynamics, employment growth is expected to ease further. We see wage growth at 9.3% y/y and employment growth at 0.7% y/y, in line with market expectations.
October 20 | Industrial production to lose some steam. The manufacturing PMI for September dropped by more than expected, to 53.4 from 56.0, reflecting supply-side pressures and rising prices on the production side of the economy. Although the PMI is still above the margin of 50 that separates contraction from expansion, sentiment was at the lowest point since February 2021. Local manufacturing sentiment deteriorated as well and was the lowest since April 2021. We see industrial production at 4.2% y/y in September, below the market consensus of 8.0% y/y.
October 21 | Retail sales to remain solid. Improving consumer sentiment and a solid labor market continue to support retail trade. We are slightly more optimistic than the market, as we expect retail sales to increase by 11.9% y/y (6.3% y/y in real terms) in September. After this week’s publication of the real economy data for September, we will have a full dataset for 3Q21 and we will review our FY21 and FY22 GDP growth forecast. Given the slowing global recovery, supply-side bottlenecks and surging prices, we see risks to the downside for our current growth forecast.
Bond market drivers | 10Y yield close to 2.7% as sell-off continues. Over the course of the week, the 10Y yield moved further up and increased by 25bp to almost 2.7%, reaching the highest level since May 2019. The aggressive tightening by the National Bank of Poland, which has been priced in since the beginning of October, pushed the long end of the LCY curve up by 55bp. The increase on the short end has been even stronger, as the 2Y yield went up by 100bp to 1.7%. The spread against the 10Y German Bund widened to 285bp and surpassed the level observed at the start of the pandemic in March 2020. On Wednesday (October 20), the National Bank of Poland will hold a one-day non-decisive meeting. On Thursday (October 21), the NBP will release the minutes of the October rate-setting meeting that brought with it the unexpected rate hike. The meeting minutes could provide more clarity about the next move of the central bank at its meeting in November.
FX market drivers | Zloty fluctuates in narrow range. Since the beginning of the month, the zloty has been characterized by increased volatility due to the unexpected rate hike by the NBP and the constitutional court decision about the superiority of Polish law over EU law. However, last week some stabilization in the range of 4.55-4.60 vs. the EUR was observed. The markets currently await the further development of the conflict between Poland and the EU and any information about the acceptance of the Polish recovery plan. On the other hand, clearer guidance about the monetary policy outlook in Poland would also support the PLN. If market expectations for further tightening of monetary policy were to be disappointed at the next rate-setting meeting, we could see the depreciation of the zloty, possibly toward or beyond 4.65 vs. the EUR.