Poland Macro Weekly: Rate cut in 2025, after all?

TOP MACRO THEME(S):

Q2 was already good, and it’s only going to get better (p. 2) –Poland stood out from the rest of EU achieving an impressive GDP growth in 2q24. July's economic activity indicators suggest continued improvement in the business climate, providing a real opportunity to maintain this favourable trend in 3q24.

WHAT ELSE CAUGHT OUR EYE:

Governor A.Glapinski stated that it cannot be ruled out that the economic situation may develop in such a way that a discussion about adjusting monetary policy could be justified earlier than in 2026, once there is certainty that inflation has peaked and forecasts show that it is permanently declining towards the target. According to L.Kotecki from the MPC most members of Poland’s rate-setting panel expect a discussion over lowering interest rates to begin in 1q25. The signals from the MPC confirm our baseline scenario – we expect rates cut in mid-2025.
The current account in June had a surplus of 588 million EUR. On a rolling 12‑month basis, the surplus decreased to 1.4% of GDP from 1.8% of GDP, mainly due to the high statistical base. Both exports and imports continued to decline in y/y terms (−6.0% and −0.2%, respectively), but in the case of imports, a clear rebound in momentum has already been visible.
In the period from January to July the state budget recorded a deficit of 82.8 billion PLN (45% of the annual plan). The growth rate of VAT revenues is accelerating (up 20.8% y/y on a cumulative basis), but the full-year VAT revenues could be 30 billion PLN lower than the MinFin’s plan. PIT revenues are growing robustly (up 30.1% y/y, on strong wage growth), while CIT revenues are declining (-23.5% y/y, due to weaker corporate profits). We expect general government deficit to increase to 5.3% of GDP in 2024 up from 5.1% in 2023.

THE WEEK AHEAD:

July unemployment is expected to inch up to 5.0%, confirming MinLab estimate.
Detailed GDP data will likely show that the consumer spending was the main engine of GDP growth at 3.2% y/y in 2q24.
We expect CPI inflation to stabilize in August at the level close to its July reading (4.2% y/y), and above the NBP target.

NUMBER OF THE WEEK: