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2020/03/10 / Erste Group Research

Poland Weekly Focus | Economic growth to ease visibly in 2020

Weaker domestic demand as well as uncertainty related to spread of COVID-19 is to drag economic growth down to 2.2% in 2020. We expect inflation in February to rise slightly to 4.6% y/y, due to high food and services prices.

March 13 | Inflation to marginally increase in February. We see February inflation at 4.6% y/y (0.6% m/m), slightly above market expectations at 4.4% y/y. We think that the growth of food and services prices remained strong and was the main factor behind the increase of the headline figure. In our view, the disinflationary effect of dropping oil prices since the beginning of 2020 will likely be more visible in the March figure.

Forecast revision | We revise our FY20 growth forecast down. We revised our FY20 growth forecast to 2.2%, due to weaker domestic demand as well as increasing fears over the spread of SARS-CoV-2019. We see private consumption easing to 3.0% in 2020, as consumer sentiment has weakened and labor market conditions are likely to ease. Investment growth will likely drop to 1.0% this year, due to increasing market uncertainty, which drags private investment down, slowing the utilization of EU funds, and the political cycle not providing a boost to public investment. As far as monetary policy is concerned, we keep our call for stable rates until the end of 2021.

Bond market drivers | Virus infected bond market. Over the course of the week, the 10Y yield remained fairly stable and moved around 1.7%. However, the developments over the weekend, i.e. further spread of the SARS-CoV-2019 and no agreement between OPEC countries and Russia regarding the cut of oil supply, resulted in a panic on financial markets. As a result, the long end of the Polish curve dropped by 30bp within a day (as of March 9), mirroring the core market development. We see the spread in the coming weeks staying around the current level of 220bp. If the situation on the markets calms down and we see core market yields going up, we could see a similar move on the long end of the Polish curve.

FX market drivers | EURPLN follows market fears. The zloty remains solely under the influence of the spread of the Coronavirus and the development of the EURUSD pair. The expectations for US rate cuts are the main driver behind the EURUSD development. The meeting of the ECB Council could trigger a movement of the pair, should expectations of a rate cut be disappointed. Therefore, we could see increased volatility on the EURPLN.

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General information

AuthorErste Group Research
Product nameCEE Country Update
Topic in focusMacro/ Fixed income
Economy in focusPoland
Currency in focusPolish Zloty
Sector in focus-


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