Poland Macro Weekly: Fiscal results in the shadow of the war

TOP MACRO THEME(S):

Fiscal results in the shadow of the war (p. 2) - Poland’s fiscal position deteriorated in 2023 (deficit in 2023 rose to 5.1% of GDP compared to 3.4% of GDP in 2022), but mostly due to discretionary measures (“energy shields” and defense spending). In 2023 military spending increased the most among NATO countries (to 3.3% of GDP - 1.3pp above the 2010-21 average), posing the largest burden pushing the deficit up.
A slower start to the economic rebound in 2024 (p. 5) – We estimate that in 1q24 GDP growth accelerated to 2.0% y/y from 1.0% y/y in 4q23 supported by solid rebound of consumption, with stagnation on the investment side. Our full-year growth forecast remains intact, at 3.7%.

WHAT ELSE CAUGHT OUR EYE:

General business climate indicator rose in April by 2.4 pts to 99.3 pts. The strong improvement in the current situation index (to 103,1 pts) elevated it above the multi-year average for the first time since Aug. 2022. At the sectoral level, construction (despite slight weakening) still stands out. According to NBP survey, construction companies intend to increase the investment scale.
Minister of finance, A.Domanski said that the VAT gap increased significantly in 2023, returning to a double-digit level (see our estimates below).
The registered unemployment rate fell to 5.3% in March, in line with expectations and seasonal effects. The number of unemployed decreased by 11.5 thous. m/m.
The decline in producer prices has slowed to -9.6% y/y from -10% y/y in February, nearly in line with our forecast and market consensus.
M3 money supply increased by 6.6% y/y in March vs. 7.4% y/y in February

THE WEEK AHEAD:

CPI inflation, which marked a trough of 2.0% in March, in April will rise probably to approx. 2.5% together with a return of higher VAT on food. Manufacturing PMI should rebound in February, but high concentration of the sample on exporters poses a downside risk.

NUMBER OF THE WEEK:

5.0% y/y – retail sales real growth in 1q24, compared to 0.0% y/y recorded in 4Q23, the highest since 1h22.