Weekly Focus Poland
Final CPI reading confirmed inflation rate at target of 2.5% in November. Government reshuffle and change in PM seat should be neutral for markets. This week, industry and retail sales should confirm ongoing strong growth momentum. Growing employment and nominal wage to reflect tight labor market conditions. No major impulses for FX or bond market in sight.
December 18: Employment to grow 4.4% y/y in November, wages to maintain close to 7% y/y growth dynamics. The recent acceleration of wage growth reflects the tightening labor market conditions. As labor shortages become an increasingly reported problem among companies, pay raises are the way to keep or attract new employees. We thus see the nominal wage growing dynamically in November and moderately accelerating in the coming months. Wage pressure will thus be gradually rising, pushing core inflation up further.
December 19: Industrial output, retail sales to maintain dynamic growth. Industry expansion has been solid lately. Not only is market sentiment strong, but also new orders and growing German exports suggest a further upward trend in industrial output growth. We expect industry to go up 8.7% y/y in November (slightly below the market consensus), while retail sales are to increase 7.2% y/y (in line with the consensus). Solid retail sales growth should continue, as the tight labor market supports a high level of household spending. All in all, the monthly development should confirm that the economy remains on a path of robust growth in 4Q17.
December 22: Unemployment rate expected to drop to 6.5% in November. The unemployment rate has been continuously dropping and reached new all-time lows. For November, we expect the unemployment rate at 6.5%.
Neither the FOMC decision nor the ECB meeting moved the long end of the curve on core markets, keeping Polish 10Y yields relatively stable as well. The government reshuffle and change of PM did not bring any market reaction. This week, domestic data should confirm the ongoing strong growth momentum. Despite the robust economic performance and increasing inflation, the majority of MPC members remain dovish in their comments. Ahead of the holidays, we see no major impulses that could push the bond market more visibly. However, the proceedings on the rule of law in Poland, if pushed further by the EC, could add some pressure and the spread vs. Bunds could widen slightly.
The zloty remained in a relatively tight range of 4.20-4.21 vs. the EUR throughout the week. The strong data on the economy is potentially zlotypositive; however, strong growth visibly above 4% this year is already priced in. We thus do not expect any major reaction driven by domestic data releases. The zloty may come under pressure if the EC pushes the proceedings on the rule of law in Poland further, which would potentially lead to triggering Article 7.