* Inflation in July in Poland jumped to 4.2 percent year-on-year. This is the highest this year and the first time since January that it has been above the NBP inflation target.
* The Fed left interest rates unchanged. However, after recent US data, especially Friday's labour market data, a cut in September now seems almost necessary
* The eurozone economy grew by 0.3% in the second quarter compared to the first. So there is no frenzy, but it was not expected either. Germany is still teetering on the edge of recession.
* The Senate has passed the regulations introducing the so-called widow's pension. They are now waiting only for the President's signature.
What's on this week?
This week, there has been a near-dry spell in economic data. In Poland, Friday's data on average wages in the national economy in the second quarter (i.e. in companies regardless of the number of employees plus in the budget sector) may stir up emotions. In the first quarter, the year-on-year increase was the second highest in the 21st century (14.4 percent), and quarter-on-quarter it was definitely the highest (8.1 percent). Now, wage dynamics will be slightly lower (even if the quarter-on-quarter data no longer shows, among other things, the effect of the increase in the minimum wage and pay rises for teachers), but year-on-year we will still see a double-digit result. This dynamics will probably continue until the end of the year.
Abroad, data on industrial production in Germany will be released (on Wednesday, August 7).
Expected jump in inflation in Poland
Inflation in Poland in July was 4.2 percent year-on-year – the Central Statistical Office reported on Wednesday in a so-called quick estimate. This means a large jump compared to June (2.6 percent) and the highest reading this year. For the first time since January, inflation also fell outside the NBP's inflation target range (2.5 percent +/- 1 percentage point). On the other hand, the reading was still lower than many analytical centers had expected, because the consensus forecast was 4.4 percent.
The inflation jump was therefore expected: it was known that the increase in electricity bills from July (and to a lesser extent gas and heating, and cold water and sewage) would have such an effect. In just one month (i.e. compared to June), energy carriers increased in price by 11.8 percent, according to the Central Statistical Office, and the general level price rose by 1.4 percent. This is the highest month-on-month inflation in a year and a half.
Economists usually believe that inflation will be in the 4-5% range in the second half of the year. The unknown is next year. If the government completely unfreezes energy prices from January, inflation may jump to 6% in the first months, and then gradually fall to around 3.5% at the beginning of the year (according to the July NBP projection). However, it is possible that protective measures will be extended, which may “spread out” the inflation peak (cut it, but extend the period of increased price dynamics), or that tariffs will be reduced (which may reduce the entire inflation trajectory).
The widow's pension is now waiting for the President's signature
The Senate has adopted the draft law on widows' pension. The document is now waiting only for the President's signature. The benefit will be paid from 1 July 2025. The aim of introducing widows' pension is to improve the situation of widowed retirees. According to estimates by the CenEA Economic Analysis Centre, the solution will reduce the risk of poverty for widows/widowers from almost 20% to below 14%. However, it will still be higher than in the scenario when the husband/wife is alive.
The current regulations state that a widow/widower can keep their pension or exchange it for a survivor's pension, which is 85% of the deceased spouse's pension. After the changes, it will be possible to combine both benefits on the following basis:
- own pension + 15% of survivors' pension
- family pension + 15% of own pension
This is to be the case from 1 July to the end of 2026. From 2027, in the above formula, 15% will be replaced by 25%. The solution will exclude wealthier people: the full amount of the benefit is to be granted up to three times the minimum pension. Since next year it will be around PLN 1,901 gross, three times will amount to a little over PLN 5.7 thousand.
Government estimates indicate that if all eligible people (approximately two million people) benefit from the solution, it will cost over PLN 4 billion in 2025, PLN 9 billion in 2026 and almost PLN 16 billion in 2027.
In the text under this link We calculated in different variants how much a widow or widower will gain from changes in the regulations. For example, if both spouses had pensions of PLN 2,000, then after the death of one of them, the other will receive PLN 2,255, which is PLN 255 more than under the current legal status.
CenEA economists have broken down the widow's pension more strongly into the first parts. They show that the greatest benefit will be gained by retirees from the middle income deciles: on average around PLN 400-500 per month. In general, however, more than half of people will gain a maximum of PLN 400, and over 90 percent – a maximum of PLN 600 per month.
On the one hand, the benefits will be significantly lower than those resulting from the citizens' draft law (which the government slightly modified, reducing the amount of the widow's pension and introducing an income limit). On the other hand, CenEA notes that it would still be possible to design a solution that would more effectively reduce the risk of poverty, and would significantly improve the situation of relatively poorer widows/widowers. Its idea is to choose between a family pension (at least the minimum pension) and the widow's/widower's own pension increased by half the minimum pension.
There are several controversies about the solution: among others, the fact that the widow's pension would apply only to spouses, and not also to people living in a civil partnership, for example. The solution is also criticized by long-term single people and single parents, who also feel left out. In turn, Michał Myck from CenEA believes that this is “another mechanism for supporting the elderly, which takes little account of the financial situation of specific households”. “There is still no comprehensive approach to the issue of long-term care and how this form of care will be financed in the future” – he writes on the X portal.
“Something is wrong in the state of Germany”
According to Eurostat's preliminary estimate, GDP in the eurozone grew by 0.6% year-on-year in the second quarter. This is a better reading than economists' forecasts (0.5%) and the result from the first quarter (0.5%). Quarter-on-quarter, the eurozone economy grew by 0.3%, the same as in the first quarter and above market expectations (0.2%).
So the data turned out to be slightly better than forecasts, but it's hard to be thrilled by growth of 0.3% quarter-on-quarter and 0.6% year-on-year. For another quarter in a row, Germany, for example, is teetering on the brink of recession, with a 0.1% drop in GDP quarter-on-quarter (and a 0.3% increase year-on-year).
Things are going badly in the German state. (…) This is a poor signal for Polish exports
– write Pekao economists and generally note that the closer to Poland, the worse the data. They are echoed by ING Bank Śląski economists who point out that the leaders of growth in the eurozone are southern countries, especially Spain (with a growth of 0.8% quarter on quarter), which are currently benefiting from the rebound in tourism and using funds from the Reconstruction Fund (RRF).
The flash estimate of Poland's GDP for the second quarter will be announced on August 14.
ING economists predict that the prospects for the third quarter of 2024 are also not particularly good for the eurozone.
Eurozone PMIs fell in June and July, indicating a weakening of the recovery seen in early summer. In recent months, companies have been increasingly negative about the business situation and the outlook for the coming months, partly due to weak orders. This most likely means that the European Central Bank will continue to cut rates in September, as domestic demand is unlikely to drive inflation higher
– they think.
Fed keeps rates unchanged, labor market data very alarming
As expected, the US Fed did not change interest rates at its meeting on July 31 (they are at 525-5.50 percent). However, both the statement after the meeting and the subsequent conference by Jerome Powell had a rather mild tone: the Fed chairman expressed his readiness to cut rates in September if the inflation and labor market data do not surprise by then. However, the latter surprised on Friday, but not in the direction of no cut, but a deep cut.
A rate cut of as much as 50 basis points in September – and further cuts in November and December – became the base case scenario for investors after Friday's US labour market data. The unemployment rate in July turned out to be significantly higher than expected and the highest in almost three years (4.3 percent). The number of new jobs in the non-agricultural sector increased by only 114 thousand, compared to the expected 175 thousand. In the first reaction to these data, the US dollar lost as much as 5 groszy against the zloty.
After these data, Pekao economists, based on the so-called Sahm index, point to the risk of recession in the US and wonder whether the Fed has not delayed the rate cuts for too long.
Other data from the US economy were also disappointing, including a weak reading of the ISM activity index in industry in July: 46.8 points, and a higher than expected number of new people applying for unemployment benefits: 249 thousand. Bartosz Sawicki, an analyst at Cinkciarz.pl, writes that they reinforce the belief that easing monetary policy in the US is not so much possible as it is becoming an urgent necessity.
The high GDP reading for Q2 (annualized growth rate of 2.8 percent) calmed the mood only for a moment. Markets are not looking in the rearview mirror, focusing on the future. And the future – based on leading barometers of the economic situation – looks gloomy. The ISM index for July published on Thursday extended the streak of disappointments. The indicator reflecting moods in industry deepened the decline to the lowest level in a year
– he comments.
Other informations:
* According to new Eurostat data, the unemployment rate in Poland (according to BAEL) was 3% in June. This means that this percentage of economically active people do not have a job, but declare that they are looking for it and are ready to start working quickly. In June, according to Eurostat, there were 532,000 such people in Poland, 2,000 more than in May and 37,000 more than in June 2023 (then the unemployment rate was 2.8%). Only the Czech Republic (2.7%) has a lower unemployment rate in the EU than Poland. The average for the entire EU is 6%, and for the eurozone 6.5%.
* The PMI index for Polish industry was 47.3 points in July. This means that – according to surveys among managers of companies in the sector – the situation has deteriorated again (including the level of orders and production volumes have fallen again), for the 27th time in a row. On the other hand, the scale of this regression was the smallest in four months in July and smaller than economists had forecasted. In other words: it is weak, but less weak than expected.
* Eurozone inflation stood at 2.6% year-on-year in July. That's more than in June and more than the consensus forecast (2.5%). Core inflation remained at 2.9%. The data added a question mark to the expectation of a rate cut by the European Central Bank in September, although that is still the most likely decision.
* A draft regulation on the minimum wage in 2025 has been published. It confirms that next year the “national minimum wage” will amount to PLN 4,626 gross (PLN 326, or 7.6%, more than currently), and the minimum hourly rate will be PLN 30.20.
* The Chairman of the Sejm Constitutional Accountability Committee, Zdzisław Gawlik, announced that the committee has proof that a copy of the initial motion to bring him before the State Tribunal was successfully delivered to the President of the National Bank of Poland, Prof. Adam Glapiński. Gawlik did not explain what kind of evidence this is, but said that he “collected all informationwhich confirm the thesis that Adam Glapiński was effectively notified”. The situation was absurd, because even though the document was sent at the end of May, the committee had not yet been able to confirm that the application had reached Glapiński. Meanwhile, this was necessary for further work. The committee will probably deal with the application regarding Glapiński in September.