Poland Weekly Focus | Economy contracted in 4Q20
Reintroduction of lockdown measures weighed on economic activity in last quarter of 2020. We see 4Q20 GDP growth dropping by -3.0% y/y. Restrictions in retail and services sector to limit recovery in 1Q21. We expect FY21 GDP growth at 3.1%.
February 12 | Restrictions weighed on GDP growth in 4Q20. We expect 4Q20 GDP growth to land at -3.0% y/y (-1.1% q/q s.a.), in line with market expectations. The lockdown measures reintroduced in 4Q20 mainly affected the retail and services sector and therefore had a milder impact on GDP growth compared to 2Q20. Based on the FY20 GDP growth figure, private consumption likely decreased by slightly below -3% y/y in 4Q20, while investment growth could have posted a double-digit contraction likely deeper than in 2Q20.
Bond market drivers | Solid yield increase on long end. Over the course of the week, the 10Y yield went up by around 10bp to 1.26%, mirroring core market development. The decreasing probability of rate cuts in Poland and Governor Glapinski’s comments that stability of rates is the most likely scenario in the coming quarters pushed the short end of the curve up. The 2Y yield, which has been locked below 0.04% since the start of the year, went up by more than 5bp to above 0.1%. After last week’s switch auction, Poland had already covered 51% of this year’s borrowing needs.
FX market drivers | Zloty to stabilize around 4.50 vs. EUR. The first half of the week brought further appreciation of the zloty, which broke the 4.48 margin against the EUR. The strengthening of the US dollar weighed on the zloty, paring its earlier gains and the EURPLN went back to 4.50. Friday’s conference from Governor Glapinski and the weakening of the USD were positive for the zloty, which returned below 4.50. According to Governor Glapinski, further FX interventions cannot be ruled out, but the NBP does not target any specific level for the exchange rate.