Polish economy likely to grow 3.2 pct in 2016; NBP unlikely to cut rates until Q4 2016

In the past quarter, economic indicators of Poland weakened; however they continue to be stable. Poland’s PMI dropped from around 54 in the first quarter to about 52. Also, uncertainty about demand from foreign trading partners like Russia and China continues.

“We hold a sub-consensus view of the German and euro zone economies during 2016”, said Commerzbank in a research report.

The first quarter GDP dropped 0.1% q/q, below market consensus of 0.6% q/q growth, whereas the year-on-year growth slowed to 3%. The Q1 growth rates are in line with the PMI behaviour. Given that the budget will become more expansionary, economic growth is likely to accelerate slightly in the second quarter, noted Commerzbank.

However, the data emphasizes on the current risks surrounding the euro area and underpins the sub-consensus forecast of expansion of 3.1% in 2016 and 3.2% in 2017, added Commerzbank. Meanwhile, a solid trend of disinflation has developed over the past year, while core inflation has slowly entered the negative territory. According to the Polish central bank, inflation is expected to be lower than the target rate for the entire monetary policy horizon up to 2017. However, NBP continues to project core inflation to trend upwards in the quarters to come.

Nonetheless, there are no signs of a turnaround. There are risks on the downside to inflation projections due to the recent international developments. There is a possibility that the National Bank of Poland will lower its key interest rate to 1% in 2016 from 1.5%, according to Commerzbank. However, the incoming central bank governor Adam Glapinski has hinted that the NBP will not ease policy further in the months to come. Therefore, the central bank is unlikely to lower rates until Q4 2016, added Commerzbank.