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Thursday, May 23, 2024

GDP growth in Poland. Pekao analysts lower their forecast

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We are revising the average annual growth of the Gross Domestic Product (GDP) from 0.9 to 0.4 percent in 2023 and from 3.1 to 2.0 percent in 2024, economists from Bank Pekao SA announced on Thursday. In their opinion, inflation at the end of this year will fall below 7.5 percent year on year.

As noted by economists from Bank Pekao SA, data for Q2 have so far been weaker than expected. In their opinion, they are “so weak that the low of the cycle is moved to the second quarter”. According to bank estimates GDP in Q2 it fell by 0.6 percent. y/y Achieving an average annual result of around 1%. – they noted – it is possible only with the assumption of unusual statistical effects (low base visible in Q/Q data).

GDP growth at the level of 0.4 percent.

“(…) We revise the average annual GDP growth from 0.9 to 0.4 percent in 2023 and from 3.1 to 2.0 percent in 2024. The reasons include: deepening of the decline in private consumption in Q2 and subsequent rebound; higher dynamics of public investment in 2023 and lower in 2024 due to the greater than previously assumed amplitude of the investment cycle of local governments; weak external demand, including in Western Europe.” analysts reported.

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The bank’s inflation scenario for this year remains unchanged after the publication of June data, and a decline inflation is progressing at a pace close to the original assumptions from the beginning of the year. According to economists, inflation in the second half of this year will continue to decline, similarly to – at a lower rate – core inflation. In their opinion, CPI inflation in September will “certainly” reach a single-digit level – and it is possible that it will happen already in August. “At the end of 2023, inflation will fall below 7.5 percent y/y,” they stressed.

Stagnation in the labor market

Economists pointed out that the domestic labor market remains stagnant. They noted that May brought a negative surprise on wage dynamics, but data for June will provide a positive accent. It is about a renewed increase in real wages, “which will stay with us for longer (although it will disappear for a while in the data for July)” – they pointed out. “Employment in the enterprise sector has hardly changed since the beginning of the year, and in fact even slightly decreased,” analysts noted. They added that such trends will be observed until the end of this year. In their opinion unemployment rate should remain almost unchanged.

About potential interest rate cuts

As Bank Pekao experts have noted, the Monetary Policy Council has not officially ended the cycle interest rate increases, but according to several members of the MPC and the governor of the National Bank of Poland, they could be cut in autumn. However, the analysis points out that the start of the interest rate cuts cycle is conditional on the realization of the base inflation scenario, with the CPI falling to single-digit levels at the end of the year and probably also favorable external circumstances, ie rate cuts in the core markets and in the region.

Main photo source: Shutterstock | illustrative photo

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