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Economic indicators of Poland have become weaker in the past quarter; however, they continue to be stable. The PMI has dropped to below 52 from around 54 in the first quarter. Meanwhile, uncertainty about demand from external trading partner such as Russia and China continues.
“We hold a sub-consensus view of the German and euro zone economies for 2016-17,” said Commerzbank in a research report.
The first quarter GDP growth decelerated 0.1 percent on sequential basis, as compared with market projections of 0.6 percent rise. On a year-on-year basis, growth rate dropped to 3 percent. The declines are in line with the PMI behaviour.
Even if growth is likely to accelerate slightly in the second quarter as the budget becomes more expansionary, the data emphasize current risks surrounding the euro area and support the sub-consensus projection of 3.1 percent growth for 2016 and a similar 3.2 percent in 2017, noted Commerzbank.
There are certain risks on the upside to the projection, but only in a situation where the ECB is able to turn around the euro area manufacturing cycle strongly in the coming year.
Meanwhile, solid disinflationary trend has developed over the past year, while core inflation has slowly drifted into negative territory. The National Bank of Poland projects inflation to stay lower than the target rate for the whole of monetary policy horizon up to 2017. But it continues to anticipate core inflation to set up an uptrend in the quarters ahead of 2016. However, there are no signs of turnaround yet.
There are risks on the downside to inflation forecasts, according to Commerzbank. Moreover, benchmark interest rates in the euro area, such as Bund yields, have moved downwards, leading to widening rate differentials for Poland.
“We see high likelihood that NBP will cut its benchmark rate from 1.5 percent to 1 percent before the end of this year. New CB governor, Adam Glapinski, has not yet signalled such intentions, but we expect rate cuts in Q4,” added Commerzbank.
