Weekly Focus Poland
The flash estimate of GDP should still point to strong growth of the economy in 2Q19, despite some warning signs that we have seen lately. We expect GDP growth to arrive at 4.6% y/y, with domestic demand remaining the main growth driver. The flash inflation reading should be confirmed at 2.9% y/y in July. Bond yields will most likely remain depressed and under global influence. The recent depreciation of the zloty might be capped by positive GDP data.
August 14: GDP growth to remain strong. We expect the 2Q19 flash estimate of GDP growth to arrive at 4.6% y/y (1.0% q/q), marginally above market expectations that stand at 4.5% y/y. We have seen weaker industry and retail sales performance only recently. The strong figures from the beginning of the second quarter should keep the growth dynamics relatively high.
August 14: Final CPI reading for July. We expect that the flash CPI reading will be confirmed at 2.9% y/y (0.0% m/m). In recent months, inflation has been strongly influenced by robust growth of food prices, but the increase in services prices has been also significant.
Bond market drivers: Polish 10Y yield followed core market development. Over the course of the week, the 10Y Polish yield went below 2% toward record low levels. It followed core market development, where the 10Y Bund went down to -0.6%. As a result, the spread vs. the 10Y Bund marginally narrowed from 260bp to around 250bp. Separately, the dovish comment from Governor Glapinski, suggesting a need for a rate cut in the event of a more severe slowdown, dragged the 12-month FRA down. The current level implies a 20bp cut by the NBP within a year.
FX market drivers: Zloty continued to weaken. Last week, the zloty continued to depreciate, albeit at a slower pace than in the previous week. The EURPLN increased by 0.4% and went above 4.30. Upcoming flash 2Q19 GDP and inflation readings might cap the depreciation of the zloty this week.