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2018/09/11 / Erste Group Research

PL Macro Outlook: Beyond the peak of the cycle


Economic growth most likely peaked in 1H18, with growth dynamics above 5%
driven mostly by domestic demand, in particular private consumption. Leading
indicators suggest a cooling off of the economy in the coming quarters. Despite
that, 2H18 should still sustain the solid growth dynamics and expand above
4.5%, whereas next year we expect the growth to slow to below 4.0%.
Recently, we have observed flattening of consumer confidence and
employment growth, which limits the space for further acceleration of HH
spending in our view. The investment growth proved to be rather sluggish, as
private investment has stagnated. Another factor that supports the moderation
of the growth is the global environment, where some slowdown in export
volume has been recently observed (as evidenced by the drop of global PMI of
the new export orders Index). Further, increase of protectionism poses a
downside risk to our growth forecast.


The wage growth acceleration to around 7% did not translate into inflationary
pressure, as the inflation peaked at 2.0% this year. Moreover, we expect
headline inflation to drop toward 1.0% at the end of the year (base effects)
before recovering in 2019 and moving back toward 2.0%. Further, core inflation
has been holding visibly below 1% and the recent downward trend in the
services inflation should additionally limit the overall increase in the inflation
figure. All in all, such a development supports the dovish stance of the MPC
and we see the stability of rates as the most probable scenario next year.

Outlook supports stability of zloty, risks are mostly external. After short-lived, but significant depreciation of the zloty toward 4.40 at the
end of June and beginning of July, the pressure on the zloty decreased, and
since then, the EURPLN has remained stable around 4.30. In general, we see
domestic factors as supporting the stability of the FX market around recent
levels. Conditional on the absence of a major shock, we would see the
EURPLN moving in the 4.25-4.30 range. The risks for our current forecast of the zloty are mostly external. The turmoil
(such as in Turkey and Argentina) is likely to weigh on the risk appetite of
investors, making the zloty less attractive. Further, the zloty remains sensitive
to the EURUSD development. In the long-term horizon, we see the zloty
appreciating and the EURPLN moving toward 4.23, conditional on ongoing
solid growth and the prospects for monetary tightening once inflation rises
above the central bank target.





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General information

AuthorErste Group Research
Date2018/09/11
Languageen
Product nameCEE Country Macro Outlook
Topic in focusFX, Macro/ Fixed income
Economy in focusPoland
Currency in focusPolish Zloty
Sector in focus-
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