Poland Macro Weekly: Consumer awakens

 TOP MACRO THEME(S):

• Consumer awakens – We summarize our forecasts for 2023-2024 (the full report in Polish available here), which includes a downward revision to GDP growth and inflation, and an upward revision to current account balance and wages. We see further reduction in interest rates but proceeding at a more cautious pace than at the beginning of the cycle.

WHAT ELSE CAUGHT OUR EYE:

• The MPC lowered NBP rates by 25bps, much smaller move than in September (75bps). During the press conference, the NBP Governor, A.Glapinski, emphasized that the central bank prefers gradual steps while conducting the monetary policy. He reiterated that available forecasts point to inflation falling to around 6-7% by the end of 2023 and to approx. 5% in mid-2024. He also added that recent rate cuts do not alter the scenario seen in July projection of the NBP, which shows inflation returning to the upper bound of 2.5% +/-1pp inflation target in 3q25.
• Debt Management Strategy for 2024-2027 assumes a gradual increase in public debt to 53.9% GDP in 2024 (against 49.3% GDP in 2023) and to 58.7% in 2027. Debt associated with the Armed Forces Support Fund was increased, while that related to COVID-19 Counteract Fund was reduced. Debt servicing costs assumed in the budget draft for 2024 stand at 1.7% of GDP and the Strategy accounts for their gradual rise to slightly above 2% of GDP in 2027.
• The government spokesman, P.Müller, said that income threshold for so-called mortgage loan holidays in 2024 (temporary suspension of loan instalments) will be relatively high, covering most borrowers.

THE WEEK AHEAD:

• The full estimate of September CPI inflation will be published on Friday and should shed more light on which core components contributed the most to a downward surprise in inflation data. Apart from that, current account balance in August will be released, where we expect another month of surplus and hence further improvement in external balance of the Polish economy.

NUMBER OF THE WEEK:

• 5.3% – GDP growth in 2022, upwardly revised from previous 5.1%, mainly on the back of stronger consumption (both private and public).