Poland Macro Weekly: Towards the interest rate cut in September

TOP MACRO THEME(S):

• Single-digit inflation - not yet, not yet – CPI inflation in August remained double-digit – it declined to 10.1% y/y from 10.8% y/y in July. Our estimates suggest a noticeable fall in core inflation and weakening of its momentum, which may convince the MPC to start rate cuts in September.

WHAT ELSE CAUGHT OUR EYE:

• GDP growth rate in 2q23 dropped to -0.6% y/y from -0.3% y/y in 1q23. The number is slightly worse than the flash estimate (-0.5% y/y). The revision of seasonally adjusted data was more visible, of the order of 1.5pp for q/q change. However, even after the change, the seasonally adjusted series does not look intuitive - GDP in 2q23 fell by as much as 2.2% after a robust growth of 1.6% in 1q23. Anyway, the data suggest that activity in the Polish economy has been in a slight downward trend since mid-2022. The broad picture of the economy in 2q23 was similar to that observed in 1q23, and the detailed components of GDP did not differ significantly from our forecast. However, it is noteworthy that investments surprised positively, rising by 7.9% y/y, after an increase of 5.5% y/y in 1q23. The strong result is a consequence of high investment activity of companies (accelerated energy transition and unblocked supply chains amid good financial results) and the public sector. Real private consumption drop deepened to -2.7% y/y in 2q23 from -2.0% y/y in 1q23, as high inflation was still hampering real incomes. Similarly to the previous quarter, inventories had a large negative contribution to GDP growth (-3.8pp), but the same as in 1q23 it was offset by positive contribution from net exports (+3.1pp). In our opinion, 2q23 marked a low in activity in the Polish economy. The following quarters should already show positive GDP growth. Our full-year GDP growth forecast of +0.7% remains unchanged.
• Manufacturing PMI declined to 43.1 in August from 43.5 in July, more than expected as production, new orders and purchasing activity all declined. Downward pressures on prices were only slightly lower than during record July 2023. Lead time quickened to greatest extent since June 2009.

THE WEEK AHEAD:

• MPC meeting will likely mark the beginning of interest rate cuts. It is too close to call, but we bet on a 25pbs rate cut on Wednesday.

NUMBER OF THE WEEK:

• 11.2% – y/y increase of nominal GDP in 2q23, the least in 2 years. The ongoing disinflation is affecting nominal economic volumes.

Drukuj