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Short-term indicators suggest a subdued scenario of Poland’s economy in the first half of 2016. In the first quarter, the Polish economy surprisingly shrank on sequential basis. Short-term indicators for the second quarter have hinted a modest recovery in the second quarter. The Polish economy is likely to expand by 0.5 percent quarter-on-quarter, said Danske bank in a research report. Small rebound in investment activity and strong private consumption is expected to drive this growth.
“Overall, we have lowered our real GDP forecast for 2016 to 3.3 percent from 3.5 percent previously on the back of the weak Q1," added Danske Bank.
Given the firmer investment growth and fiscal stimulus, the Polish economy is likely to expand strongly in the second half of 2016 and carry into 2017, where the real GDP is expected to grow 4.4 percent.
But the growth outlook faces downside risk from a continued stand-off with the EU. The EU Commission has taken up a negative view on Poland under the ‘rule of law procedure’ on June 1 after failing in attempting to find a compromise with the Poland’s government.
Meanwhile, the National Bank of Poland’s monetary policy committee has maintained the policy rate at 1.5 percent during its June meeting. Subdued inflation is balanced by a considerable labor market tightening and a rebound in wage growth with gross wages rising at the most rapid pace in April in nearly four years.
The Polish central bank is likely to be on hold for some time. But it is likely to move towards a tightening bias at the end of 2017 and onwards as economic growth accelerates, according to Danske Bank.
Concerns regarding UK exiting from EU and global risk sentiment have begun to weigh on the Polish currency recently. If the UK stays in EU, the zloty is likely to rebound modestly to 4.36 against the EUR on one month horizon.
“On 3M, we expect EUR/PLN to strengthen very modestly given that the falling risk premium, assuming a resolution of the conflict with the EU and strengthening of the Polish economy, is almost neutralised by a prospective Fed tightening,” noted Danske Bank.
However, the pair is expected to strengthen moderately to 4.27 and 4.22 on six month and 12 month horizons respectively.
