Polish economy likely to expand 3 pct this year, central bank to remain on hold for time being

The recent economic indicators of Poland showed that the post-Brexit referendum confidence towards the Polish economy is rebounding. The investor sentiment for the nation gauged by ZEW for the month of August surged to 50 percent from 12 percent in July. Meanwhile, the PMI manufacturing also rebounded, surpassing expectations. The nation’s industrial output rose 7.5 percent, improving from the weak figure recorded in July.

Private consumption also appears to be doing well, with retail sales rising 5.6 percent in August, an increase from July’s 2 percent. This was underpinned by a further drop in unemployment, declining further to 8.6 percent in July. The second quarter real GDP growth improved to 0.9 percent quarter-on-quarter following a very weak first quarter. This is in line with the projection of 3 percent growth for the whole of 2016, said Danske Bank in a research note.

On the political front, there are two key worries – relations with the European Union and the budget for 2017. The EU extended the deadline for Poland to address EU concerns about the rule of low in early August. Even if Hungary’s support for Poland signifies that the EU cannot adopt a negative ruling, it might still weigh on investor sentiment, added Danske Bank.

The Polish government on Wednesday reshuffled the government. Mateusz Morawiecki was appointed as the new finance minister. Meanwhile, the Polish government also approved the budget goals for 2017 and targets a deficit of 2.9 percent of the GDP.

“While we think the government will attain the targets (partly due to strong revenue developments this year), the budget for 2017 will be a key issue for the markets in the autumn”, stated Danske Bank.

Meanwhile, the National Bank of Poland’s monetary policy committee maintained the policy rate at 1.5 percent during its July meeting. The central bank governor Adam Glapinski sounded hawkish during the meeting, mentioning that there is ‘no temptation’ to lower interest rates. This signals that the NBP might begin hiking rates near the end of 2017 on rising inflation. The central bank might remain on hold for the time being, according to Danske Bank.