Weekly Focus Poland
GDP structure confirmed strong private consumption and investment growth still lagging behind. Flash CPI arrived at 1.8% y/y and PMI increased to 52.5 in August. This week, MPC should keep policy rate flat and sustain dovish rhetoric; ECB meeting likely to be more important for FX and bond.
The MPC will hold its meeting this week after the August holiday break. We expect the policy rate to remain flat at 1.5%. Economic development has proved robust while inflationary pressure remains limited. Such development is in line with the MPC’s expectations. We thus expect Governor Glapinski to reiterate the dovish stance. Stability of rates until 4Q18 is currently our baseline scenario unless inflationary pressure increases sooner.
We expect Moody's to keep the A- rating and stable outlook for Poland unchanged. Monday’s revision of this year's growth forecast from 3.2% to 4.3% suggests no negative surprise, especially as the robust growth significantly reduces the risk of breaching the fiscal limits. However, Moody’s may note the negative institutional development.
Final GDP confirmed flash release and arrived at 3.9% y/y in 2Q17, 1.1% in q/q terms. GDP structure shows solid economic growth mainly driven by domestic demand, with 4.9% y/y growth in private consumption. Finally, we observed positive growth of investment (0.8% y/y), but dynamics remain rather weak. Net export contribution slightly negative, whereas inventories increased substantially.
While at the beginning of the previous week the yield curve moved down, at the end of the week the few basis points move was offset. Domestic data had no impact on the Polish yield curve and this week we also expect domestic events (MPC meeting) to remain neutral for the bond market. The ECB meeting should remain the focus of investors, who are likely to look carefully for any signs of hawkishness.
The zloty gained towards the end of the week and touched 4.23 EURPLN on Friday in response to weak data in the US (non-farm payrolls). At the beginning of this week, the EURPLN moved back towards 4.24. Domestic data and the MPC meeting should remain neutral for the FX market. The EURPLN is likely to be more sensitive to global events, especially as the ECB meeting is due this week.