Poland Weekly Focus | Real economy to take deep dive in April
Real economy data for April will be in focus this week. With distancing measures in place throughout the whole month, we expect industrial production to go further into negative territory, with double-digit contraction of retail sales highly likely.
May 20 | Pandemic to weigh on labor market. The labor market data for April should provide the first insights into the effects of the lockdown on economic activity. We expect wage growth to ease to 4.1% y/y, while employment should, in our view, decrease by -0.4% y/y.
May 21 | Industrial production to visibly contract. With lockdown measures in place throughout April, we expect industrial production output to contract by -5.7% y/y (down from -2.3% y/y in March). However, a deeper dive cannot be ruled out. We expect economic activity to bottom out in April, as measures began to be lifted gradually in May.
May 22 | Retail sales to hit wall. Shopping centers remained closed throughout the whole month. Together with plummeting sentiment and likely dropping incomes, households drastically limited the level of spending. We expect retail sales to contract by -16.3% y/y (down from -7.1% y/y in April). We expect retail sales to begin improving gradually from May onwards, as shops and shopping malls start to open up.
Bond market drivers | 10Y yield dropped strongly. Over the course of the week, the long end of the curve dropped by 20bp to 1.3%. As a result of such a strong decrease, the spread over 10Y Bund narrowed visibly back towards 180bp. The LCY curve followed core market development, where some downward movement was also observed. This week, BGK plans to hold another auction and offer medium- to long-term papers. Furthermore, the PFR should also hold another auction this week.
FX market drivers | EURPLN weakened. Last week, the zloty depreciated on the back of global news and the EURPLN returned above 4.56. We expect the zloty to remain weak in the coming months, although we pencil in slight appreciation towards 4.53 by the end of 2Q20. This week, flash PMIs for Germany, France and the Eurozone as a whole for May will likely be closely watched by the markets.