Polish economic growth likely to remain above 3 pct in 2017, consumer spending to be lead factor, says Nordea Research

Economic growth in Poland is expected to remain above the 3 percent market, or at least touching the mark in the upcoming new year, with consumer spending being the torchbearer for the rise in growth. Investment is mostly to blame for the growth disappointments in 2016, but could still see much stronger momentum in 2017.

2016 was hardly the growth year that it was expected to be a year ago. Growth is now seen at 2.4 percent for the year, which even requires a healthy momentum in Q4. 2017 is still expected to see growth just above 3 percent, but the question is of course the extent to which the disappointing growth will continue in 2017, Nordea Research reported.

Political risks are high. In the short term, this is mostly reflected in financial markets. In the longer term, foreign involvement is likely to be on a clear downward trajectory. Budget risks have also increased as the government delivers on a number of election promises. The first rate hike is seen in 2018 with risks fairly balanced.

Moreover, the PLN is likely to remain weak, but not weak. The CHF conversion issue probably needs a solution before any meaningful appreciation can take place. Continued positive labour market developments have been the key to the growth outperformance in the first decade as an EU member.

The short-term impact has mostly been seen on the financial markets, where the PLN has underperformed its peers this year and where 10-year bond yields are higher in Poland than in Hungary for the first time since 2002.

"We see fairly low risks of interest rate changes in 2017, which is in line with market pricing. We forecast two rate hikes in 2018," the report said.