Poland’s economic growth to accelerate slightly in Q2, NBP likely to lower key rate to 1% in 2016

In the past quarter, Poland’s economic indicators have become weaker; however, they continue to be stable. The PMI dropped to 51 in the first quarter from 54. Also, uncertainty about demand from external trading partner nations including Russia and China continue. GDP declined 0.1% q/q in the first quarter, below expectations. On an annual basis, the GDP growth rate dropped to 3%.

“While we expect a slightly acceleration in growth in Q2 as the budget becomes more expansionary, the data highlights ongoing risks surrounding the euro zone and support our sub-consensus 3.1% growth forecast for this year and a similar 3.2% next year”, says Commerzbank in a research report.

There are certain risks on the upside to the abovementioned projections only under a situation where the European Central Bank is able to rebound the euro area’s manufacturing cycle in the coming year.

In the past year, the country has faced solid trend of deflation, while core inflation has slowly moved into the negative territory. The National Bank of Poland projects inflation to be lower than the target rate for the entire monetary policy horizon up to 2017. However, it still projects core inflation to move upwards in the quarters to come this year. But, t here are no such signs of a turnaround yet, according to Commerzbank.

“We see downside risk to inflation forecasts because of recent international developments – at the beginning of the year, we revised lower our 2016 inflation forecast from 0.5% to -0.7% – we see high likelihood that NBP will cut its benchmark rate from 1.5% to 1% this year”, added Commerzbank.