Weekly Focus Poland
MPC left policy rate flat at 1.5% and reiterated dovish stance of no policy rate change this year. Government was reshuffled. Industrial output and retail sales growth to be published this week and data releases should confirm that economic growth in 4Q17 remained strong. Zloty holding strong while long end of curve likely to be driven by global sentiment.
January 19: Industrial output growth expected at 3.2% y/y in December Industrial performance has been robust, reflecting strong market sentiment. After the very dynamic expansion of industry in November (up 9.1% y/y), we expect the dynamics to slow, mostly due to calendar effects (fewer working days). All in all, however, solid industrial output growth suggests robust economic growth in 4Q17.
January 19: Retail sales should grow 6.7% y/y Retail sales growth was in double digits in November, suggesting that private consumption should remain the driver of growth in the last quarter of the year. Favorable development on the labor market, in particular, and growth of wages support high levels of household spending. In December, robust growth should be sustained, but the headline number is likely to be negatively affected by the lower number of working days in December.
Spread vs. Bunds continues to narrow The increase in 10Y German yields above 0.5% last week (driven mostly by the hawkish tone of the ECB minutes) also moved the long end of the Polish yield curve, although the spread vs. Bunds has been narrowing. This week, domestic data releases should have no major impact on the bond market, as the MPC made it clear last week that no monetary tightening should be expected in the coming quarters. The long end of the curve should overall follow developments on the core market.
Despite slight correction, zloty remains strong It seems that the continuous strengthening trend for the zloty has come to an end. After touching 4.15 vs. the EUR, the EURPLN returned to levels around 4.17 last week. The overall good economic situation as well as risk-off mode support a relatively strong zloty. This week, domestic releases should confirm that the economy sustained solid growth in 4Q17. The EURPLN pair is likely to remain impacted by changes in the EURUSD pair.