Poland Macro Weekly: Inflation back in target will not impress the MPC

TOP MACRO THEME(S):

RRF funds – race against the time (but it’s worth it) (p.2) – Poland may count on an inflow of approx. EUR 24 bn EU funds this year, the majority under the RRF, although some revisions to investment plans may be necessary.

WHAT ELSE CAUGHT OUR EYE:

The second estimate confirmed that GDP grew in 4q23 by 1.0% y/y, while it did not change on a quarterly (sa) basis. It is worth to bear in mind that sa series is highly volatile and frequently revised in subsequent iterations (see chart below). Data on the structure of economic growth confirmed the stagnation of private consumption (-0.1% y/y in 4q23 after +0.8% y/y in 3q23), which was recorded despite a strong increase in real wages. Investments were stronger than expected (8.7% y/y), the growth of which accelerated from 7.2% y/y in 3q23.
The PMI in manufacturing unexpectedly increased to 47.9 pts in February from1 pts in January. Although the index has remained below the neutral level for 22 months, the rate of decline in activity has slowed down, which, combined with a significant improvement in business expectations over the next 12 months, suggests that recovery is ahead.
The Energy Regulatory Office (ERO) reduced the tariff for the sale of gas to households for 20024 by 8.54%. In 1h24, the decision will not have an impact on CPI inflation, due to frozen gas prices for households (at PLN 200.17/Wh vs. the new tariff price of PLN 290.97/MWh). The lower tariff slightly reduces inflation forecasts for 2h24 in the scenario of full price unfreezing (the difference against initial gas tariff level is approximately 0.2 pp).
Finance Minister, A.Domanski, said that the decision on the VAT rate on food (currently lowered to 0% from 5% previously) will be made next week.

THE WEEK AHEAD:

Wednesday will bring the NBP’s decision on interest rates. The MPC’s latest comments leave no doubt that rates will remain unchanged and the MPC will ignore arguments favoring rate cuts. These include a temporary return of inflation back to the NBP’s target in April and its permanent return to 2.5% in 2h26, which we should see in an updated inflation and GDP projection.

NUMBER OF THE WEEK:

PLN 10bn – value of mortgage loans granted in Jan. 2024, the highest in history.