Poland Macro Weekly: Will fiscal policy halt interest rate cuts?

TOP MACRO THEME(S):

Budgetary surprises (p. 2) – government presented the draft budget showing general government deficit at 5.5% GDP in 2025 against 5.7% GDP planned for 2024 and an increase of general government debt to nearly 60% in 2025.
Inflation path has flattened again (p.4) - August brought only a minor uptick in inflation and we expect it to remain within 4-5% range until the end of 2024.

WHAT ELSE CAUGHT OUR EYE:

GDP growth in 2q24 was confirmed at 3.2% y/y (against 2.0% y/y in 1q24) in Statistics Poland second estimate. Structure of growth met the expectations with private consumption growing by 4.7% y/y and even stronger growth in public spending (10.7% y/y). Investments surprised on a positive note, increasing by 2.7% y/y, despite disappointing signals coming from big companies (see chart below), which indicates a significant boost from public sector (probably including military spending).
Registered unemployment rate unexpectedly increased to 5.0% in July, reflecting a monthly increase in the number of unemployed persons (contrary to the seasonal pattern). An annual increase was observed in the number of unemployed graduates and newly registered persons. Meanwhile LFS unemployment rate fell to 2.7% in 2q24 from 3.1% in 1q24, yet up from 2.6% in 2q23. During the year employment and participation rates deteriorated somewhat, under the impact of an ageing society (deterioration did not correspond to working age population).
The Ministry of Finance announced that it is not working on extending the mortgage loan holidays to 2025.

THE WEEK AHEAD:

Week will start with the PMI index, which we expect to increase only marginally to 47.4 pts. The MPC meeting will be in the spotlight, after a summer break in August, although another pause in rates is expected – recent comments from the MPC’s representatives, including the Governor A.Glapinski, reinforced expectations for interest rate cuts in 2025. Released budget draft showing a significant fiscal impulse in 2025 may postpone this perspective though.

NUMBER OF THE WEEK:

5.5% of GDP – net financial result of large non-financial companies in 2q24, the lowest since 4q20