Weekly Focus Poland | Domestic demand supported growth in 2Q21
Flash estimate of 2Q21 GDP growth to be confirmed at 10.9% y/y. Private consumption and investments to post strong growth dynamics, while net export is to weigh on figure. We will revise our FY21 growth forecast up likely to 5.2%. Flash inflation for August is expected at 5.2% y/y.
August 31 | 2Q21 GDP growth to be confirmed. We expect the flash estimate of 2Q21 GDP to be confirmed at 10.9% y/y (1.9% q/q s.a.), marking the strongest growth on record. The broad-based economic rebound and base effect were behind such a high print. We expect both private consumption and investment activity to accelerate and post solid growth dynamics. While domestic demand contributed positively to the headline figure in 2Q21, net export likely continued to weigh on the GDP growth. Given the recovering import activity, the trade balance shrunk visibly in 2Q21. All in all, following the publication of detailed GDP data, we will revise our FY21 growth forecast up likely by around 0.4pp to 5.2%.
August 31 | Inflation increased in August. After reaching a 10-year high at 5.0% y/y in July, we expect headline CPI to have accelerated further to 5.2% y/y in August. In our view, the recently announced increase of gas prices for households, which took effect on August 1, pushed CPI up further. Price pressure will remain elevated until the end of the year and likely in 1Q22, as headline inflaiton will remain locked above the 5% mark in the coming months. We continue to think that the National Bank of Poland will deliver a 15bp hike in November following the publication of a new inflation and growth projection, which will envisage CPI staying above the central bank’s target within the forecast horizon. All in all, we see inflation on average at 4.4% in 2021 and 3.9% in 2022.
Bond market drivers | 10Y yield followed core markets. Over the course of the week, the long-end of the Polish LCY curve went up by around 10bp toward 1.8%, following core market developments. Last week, the MinFin presented a draft of next year’s budget act, which pencils in a budget deficit at 2.8% of GDP and public debt at 55.5% of GDP. Given the stronger than expected economic recovery and better performance of the budget in 1H21, this year’s deficit will be lower compared to the one projected in the budget act. The MinFin expects the central government deficit to land at PLN 13bn (vs. PLN 83bn in the budget act), ‘just’ -0.5% of GDP. However, the pandemic response has been financed via BGK and PFR issuance, which is not included in the central government deficit, but affects the ESA2010 figure. Thus, the budget deficit could land within 1.5-2.0% of GDP in 2021.
FX market drivers | Zloty remains unchanged. Despite the slightly improved global sentiment, the zloty was broadly unchanged and remains locked at around 4.57 vs. the EUR. While the Hungarian forint continued to benefit from monetary tightening, the dovish policy of the National Bank of Poland is weighing on the PLN. Fed Chair Powell’s speech at the annual Jackson Hole symposium did not bring expected clarity regarding the tapering of asset purchases program. Following Powell’s speech, US dollar weakened to 1.18 vs. EUR, while 10Y US Treasury yield dropped to 1.3%. CEE currencies remained broadly unchanged at the end of the week but could strengthen today on the back of weaker US dollar.