Poland Macro Weekly: Budget amendment - much ado about nothing?

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TOP MACRO THEME(S):

• Looking for the “weak” links in the US-CEE trade relations (p. 2) – US elections are looming large and their result will shape the future course of international trade. Under scenario of D.Trump’s victory and his protectionist trade policy, direct impact on the CEE exports should be limited, while indirect effects may be more profound.

WHAT ELSE CAUGHT OUR EYE:

• The government adopted a draft amendment to the Budget Act for 2024, assuming a maximum deficit of PLN 240.3bn compared to PLN 184.0bn in the current act (an increase in the deficit by PLN 56.3bn). In relation to GDP, this would mean a budget deficit of up to 6.6%, i.e. 1.5pp higher than according to the Act. The scale of the deficit revision is larger than we expected. The higher deficit results only from a downward adjustment in the expected amount of revenues (due to lower nominal GDP growth, revenues from the sale of CO2 emission rights, lack of profit transfer from the NBP) with no change in the total amount of expenditures. Due to relatively low advancement of expenditure and their systematic (in previous years) incomplete implementation, generating savings of approximately 1% of GDP, we perceive this revision as an inter-temporal management of the budget result and think it is also aimed at preventing potential tensions in 2025. The draft amendment also states that the main source of financing the additional deficit is to be the funds accumulated so far in the state budget accounts (PLN 44.1bn on PLN accounts and PLN 3.9bn on foreign currency accounts), with limited need of issuing new government securities (PLN 11bn).
• CPI inflation in October inched up to 5.0% y/y from 4.9% y/y in September, on the back of higher food prices (m/m growth boosted by unfavorable weather conditions) and fuel price growth (y/y, due to base effect driven by last year's price promotions) amid lower core inflation (PKOe: 4.1-4.2% y/y). In November, CPI inflation should decline slightly, while its path in 2025 will depend on the decision on energy prices - the Polish government is to discuss this issue today.

THE WEEK AHEAD:

• The MPC decision (Wed.) and governor Glapinski’s press conference (Thur.) will be in the spotlight, followed by credit rating decisions of Fitch and S&P (Frid.).

NUMBER OF THE WEEK:

• 4.8% – labour market slack in Poland in 2023, the lowest in the EU

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