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2022/06/15 / Erste Group Research

A rollercoaster ride for the economy

Brisker 1Q22 growth to be followed by a slowdown

Despite the headwinds from the war in Ukraine, supply-side issues and high inflation, Polish GDP exceeded expectations and rose by 8.5% y/y in 1Q22. However, the above issues have not dissipated and growth is set to slow down markedly in the coming quarters, as high inflation and interest rates, together with elevated uncertainty weigh on consumer demand and investments, and supply-side problems cause trouble in trade.

Yet, higher fiscal spending and consumption linked to the sizeable number of refugees from Ukraine help cushion growth to some extent. Given the strong start of the year and its carryover effect, GDP growth may rise close to 4.2% on average in 2022. Next year, growth should moderate towards 3%. The unlocking of Recovery and Resilience EU funds is definitely a positive, especially from next year onwards as it will boost investments. Nevertheless, the current outlook remains highly uncertain and a lot depends on further development in Ukraine.

Inflation has accelerated over the past few months and remains in the double-digits. The key culprits behind the rise are food, energy and housing, as the start of the war in Ukraine exacerbated the already existing supply-side pressures and created new ones. The demand-side factors remain proinflationary, as well, given loose fiscal policy and tight labor market. We expect the government to prolong the anti-inflation measures until the end of 2023. Nonetheless, inflation is likely to average 13.1% this year, with a peak around 15% y/y in the autumn, before easing to 8.1% in 2022.

Thus, further rate hikes from the National Bank of Poland are on the cards and we expect the peak of the tightening cycle at 7.5% by the end of 3Q22. In light of further tightening by the central bank and the expected flow of EU money into the economy, we expect the currency to appreciate in the medium-term. However, taking into account headwinds from abroad, the firming may be limited.
LCY bond yields have been on an upward drive since the beginning of this year and the yield curve inverted in March. Although the inversion was later reversed for a few weeks, June brought it back again. The current high yields and spreads are hardly justified by fundamentals, given central bank’s commitment to contain soaring inflation, but geopolitical risks continue to remain the main driver for the local bond market. We expect the 10Y yields to mark some correction by the end of the year, accompanied by gradual narrowing of spreads vis-à-vis the Bunds.

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General information

AuthorErste Group Research
Product nameCEE Country Macro Outlook
Topic in focusFX, Macro/ Fixed income
Economy in focusPoland
Currency in focusPolish Zloty
Sector in focus-


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