Poland Macro Weekly: Inflation getting close to the target

TOP MACRO THEME(S):

December prelude to a significant inflation decline in the early 2024 (p.2). The lower than expected CPI print for December supports our view that at the turn of 1-2q24 CPI will (temporarily) fall within the band of deviations from the NBP target.

WHAT ELSE CAUGHT OUR EYE:

After a significant surge in November, Poland’s PMI manufacturing for December declined to 47.4pts from 48.7pts, somewhat stronger than expected. PMI levels throughout 2023 were only marginally better than those seen during the crisis years of 2001 and 2009.
Economic activity indicators for November mostly disappointed. Retail sales unexpectedly declined by 0.3% y/y following a 2.8% y/y increase in October, construction output increased by 3.9% y/y, and industrial production fell by 0.7% y/y, contrasting with a 1.9% y/y growth in October, despite having one more working day compared to the previous year. Output data for December will be affected by negative calendar effect, but we anticipate a revival in 2024.
M3 money supply growth in November decelerated to 7.6% y/y vs 8.2% y/y in October. A robust 1% m/m surge in PLN-denominated mortgage loans was observed, representing the most vigorous increase since 2021. Annual growth rate of PLN mortgages became positive (+0.8% y/y) for the first time in more than a year. This is partly a transitory effect of the government’s support program for borrowers (‘Safe Mortgage 2%’).
The scenario of the suspension from duties of the NBP governor after being brought before the State Tribunal is hypothetical, but if it were to happen, the potential implications for Poland's credit rating would not be automatic, as per insights offered by the principal analyst at S&P Global Ratings, L.Heinz.

THE WEEK AHEAD:

We expect the Polish MPC to leave interest rates unchanged on Tuesday. The monetary policy is in a wait-and-see mode and potential further cuts are not expected before March.
November most likely brought another substantial monthly CAB surplus, and on a 12-month basis, the surplus increased to around 1.4% of GDP.

NUMBER OF THE WEEK:

EUR 5bn – EU funds received by Poland in December as part of the RePowerEU.