Poland Macro Weekly: Fiscal institution reforms on the horizon

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TOP MACRO THEME(S):

• Fiscal institution reforms on the horizon (p. 2) – There has been a lot of news on fiscal policy recently, including draft law on creation of Fiscal Council. We analyze them and asses that MinFin’s desire is to slowly reduce deficit while (partly) implementing new government election promises.

WHAT ELSE CAUGHT OUR EYE:

• In April, as we expected, current account had the first monthly deficit this year (EUR -241m, consensus: EUR +194m, PKOe: EUR -218m). However, on a 12m rolling basis, the surplus widened from 1.2% to 1.5% of GDP (as the deficit in April 2023 was much deeper than this year). Annual growth rates of exports and imports returned to positive territory, driven by a calendar effect. The data also reflected the inflow of loans from the RRF. In the coming months, we expect a gradual narrowing of the current account surplus, partly due to increased consumption and investment imports (including military spending). At the same time, CAB combined with the inflow of EU funds and FDIs should remain in large surplus (strong external position of the economy, supportive for PLN).
• CPI inflation in May inched up to 2.5% y/y vs. 2.4% y/y, confirming the flash estimate. The increase of inflation was mainly driven by fuel prices. Monthly food price rise was 0.3% following a 2.1% jump in April due to the return of the 5% VAT rate. Core inflation continued its faster-than-expected downward trend, falling to 3.8% y/y in May from 4.1% y/y in April. We expect CPI inflation to go up to around 5% y/y at the end of the year, primarily due to the partial unfreezing of energy prices in July, with an estimated impact of this factor at +2pp y/y.
• In 1q24, the number of job vacancies in the economy increased by 15.3% q/q, but it was still by 2.5% lower than a year ago. At the end of March 2024, the number of job vacancies stood at 112k, with a job vacancy rate of 0.89%.

THE WEEK AHEAD:

• On Thursday the April data from industrial sector and labour market will be released. Strong y/y wage growth reflects past minimum wage increase, and is accompanied by some deterioration in employment. Industrial sector has likely, once again, been affected by an unfavourable calendar. Despite higher prices of commodities, PPI deflation is likely to stay with us for some time.

NUMBER OF THE WEEK:

• 4.1% – the planned wage increase in the public sector in 2025 vs 20% in 2024.

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