Poland Macro Weekly: Fiscal ghosts crawl out in the CEE

Fiscal monster mash – Fiscal challenges which had been accumulating since the pandemic have strained fiscal position of the CEE economies. With the return of EU fiscal rules looming on the horizon, governments in the region intensified efforts to finalize budgets for 2024.

Construction output in September jumped 11.5% y/y, stronger than expected. As in previous months, it was the engineering that worked as the main engine of growth, fueled by finalization of projects co-financed by the EU multi-year budget. The building segment also rebounded, reflecting recovery in the housing sector.
M3 money supply in September rose by 8.4% y/y vs 7.3% y/y in August, stronger than expected. PLN mortgage loans rose by 0.5% m/m, the strongest since Dec’21. In contrast, companies continued to reduce demand for credit.
Fiscal deficit after 2q23 widened to 4.7% of GDP from 3.9% after 1q23. Military and energy-related expenditures are notable in the spending structure. On the revenue side, we see a gradual rebound of VAT and bottoming out PIT. The public debt-to-GDP ratio rose to 48.4% from 48.1% in 1q23, the first increase since 1q21.
The registered unemployment rate in September stayed at 5.0%. Despite weaker labour demand, the unemployment rate has been flat since July.
Revision of GDP numbers for 2022-2023 lifted private consumption growth in 2022 by as much as 2pp, making its growth rate positive in every quarter of last year, which may explain the persistence of core inflation. In 1h23, investment grew much faster than previously estimated (10.5% y/y in 2q23).
The Steering Committee of the National Working Group has postponed the deadline of conversion of WIBOR to WIRON to the end of 2027.

The key local factor for the market will be flash CPI for October (our estimate is below 7.0% y/y vs 8.2% y/y in September) and manufacturing PMI for October, which should continue an upward move.

13th of November – the first sitting of the new parliament, during the next 14 days President A.Duda has to appoint a new Prime Minister.