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2019/03/12 / Erste Group Research

Poland: Solid domestic demand to shield the economy

Fiscal stimulus brings upside risks to growth forecast. Inflationary pressure to remain low. Global development to outweigh domestic pressure on yields. Locked zloty to move according to global factors.

For the time being, we keep our growth forecast unchanged at 3.8% for 2019 and 3.3% for next year. We note, however, that the risks have moved to the upside, due to the announced fiscal stimulus. The injection of roughly 1% of GDP in the form of social benefits should support private consumption in the second half of the year, balancing out the possible negative effects of the slowing external environment. In the meantime, we expect to see the economy slowing to 4% in 1Q19.

So far, both headline and core inflation have been rather sluggish (around 1% recently). Even in the case of growing demand pressure, we do not expect the inflation rate to overshoot the central bank target of 2.5% due to external deflationary factors (low price of oil, idle growth of food prices, freeze of energy price). Actually inflatin rate is likely to remain below the 2% for most of the year. All in all, stability of rates remains the most likely scenario,amid major central banks turning more dovish recently.

In response to the fiscal stimulus, the long end of the yield curve went up sharply, pricing in higher growth and inflation expectations. Our expectations for monetary policy to remain stable cap the expected increase in 10Y yields at around 3%, though. The dovish ECB stance, favoring a lower level of yields in the Eurozone, also should prevent long-term interest rates from rising in Poland as well.

The EURPLN has been locked around 4.30. The recent move of the zloty toward 4.33 vs. the EUR was short-lived. Domestic factors do not support strengthening of the zloty. Global factors are likely to have a bigger impact on the zloty.

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General information

AuthorErste Group Research
Product nameCEE Country Macro Outlook
Topic in focusFX, Macro/ Fixed income
Economy in focusPoland
Currency in focusPolish Zloty
Sector in focus-


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