Poland holds steady pace of GDP growth

Poland's economy lost some momentum as GDP growth slowed down to 3.3% y-o-y in Q2, from 3.6% in Q1. While the breakdown confirmed that private consumption and investment remained the main pillars of growth, the former eased marginally to 3.0% y-o-y from 3.1% in the previous quarter and the latter decelerated to 6.4% y-o-y after robust growth of 11.4% in Q1. Looking ahead, the domestic environment should remain conducive for both households and companies. The sharp fall in global oil prices to a new year-to-date low in August bodes well for households, which are already benefiting from prolonged deflation. Agriculture Minister Sawicki, however, warned that the "worst drought in a decade" will lead to "a lower harvest and an increase in food prices." The Polish statistics office reported that 72% of Poland's agricultural land is suffering from severe drought with extreme conditions in 19% of the area. That said, potentially higher food prices should be offset by the prospect of lower for longer energy prices as Brent crude could revisit the 2008 low in the coming months. 

As for external demand, it is encouraging that despite China's economic woes the German Ifo business climate index unexpectedly increased to 108.3 in August from 108 in July. In its monthly bulletin the Bundesbank said that Germany is poised for "solid" growth. Given that Germany is the most important trade partner for Poland, such a prognosis is positive for Polish exporters. Substantial escalation of geopolitical tensions between Russia and the West (NATO plans to boost its presence in Poland due to the ongoing conflict in eastern Ukraine) is the main source of downside risk to Polish economy. 

"We maintain our cautiously optimistic forecast for 2015 GDP growth of 3.5% y-o-y amidst accommodative monetary policy with the base rate is likely to remain at the record low of 1.50% until well into 2016 when the terms of nine Monetary Policy Council members will expire", says Rabobank.