TOP MACRO THEME(S):
- Borrowing from the future growth: The high contribution of inventories to GDP growth suggests that the current, high GDP growth is partly "borrowed" from the future – a normalization of the demand for inventories will likely result in a decline of GDP growth, even to around zero at the beginning of 2023.
WHAT ELSE CAUGHT OUR EYE:
- CPI inflation in May (flash estimate) increased to 13.9% y/y from 12.4% y/y. The reading hasn’t exceeded market expectations for the first time since the print for January. The data showed a relatively strong but weaker than expected increase in food and fuel prices. Energy prices increased by 3.4% m/m (31.4% y/y), driven by soaring coal prices. Core inflation was higher than expected and, on our estimate, went up to 8.3-8.5% y/y.
- Manufacturing PMI in May fell more than expected, to 48.5 pts. (from 52.4 pts. in April), marking the first reading below the neutral threshold of 50 pts. since June 2020. A sharp decline of both new orders and production were conductive to this strong PMI decline. In May both input prices and prices of finished products, were still rising, although at a weaker pace than in April.
- The European Commission has given a positive assessment of Poland's recovery and resilience plan, an important step towards the EU disbursing EUR 23.9 billion in grants and EUR 11.5 billion in loans under the Recovery and Resilience Facility. Poland has struggled to secure the approval as the Commission pressed for reforms to the judiciary system that would implement several CJEU rulings on the matter.
THE WEEK AHEAD:
- We expect the MPC to hike rates by 75bps on Wednesday, following the pledge to keep raising rates as long as the CPI is growing. The MPC will have to balance accelerating inflation and worrying signs from the industrial sector suggesting sharp slowdown.
NUMBER OF THE WEEK:
- 1092.67 PLN/MWh – the weighted average price in May of a base energy contract for 2023, compared to PLN 627.17 in January.