Poland Macro Weekly: Inflation never ceases to surprise

Both January and February CPI inflation turned out lower than expected, with the record high scale of revision to the former one due to annual changes in the CPI basket. Yet the momentum of core inflation remains strong.
We took a closer look at the Polish banking sector to see how its position differs from the SVB’s.

Better trade balance translated into (already expected by us) improvement in the current account, which saw a surplus of 1,429 bn. EUR, being the best result since 2020. In 12-months rolling basis current account deficit in relation to GDP declined to 2.7% from 3.1% and was the lowest since March 2022.
Trade balance in January equalled 1.4 bn. EUR and the surplus was recorded for the first time since June 2021, reflecting a reversal of inventories cycle and normalisation in prices of raw materials. In nominal terms exports grew by 12.0% y/y, in particular to the Czech Republic (31.8% y/y) and France (15.1% y/y), accompanied by slightly lower growth of foreign sales to Germany (8.2% y/y). Imports increased by 5.6% y/y, most significantly from the USA (73.1% y/y).
Fitch Ratings revised downwards Poland’s GDP forecast for 2023 from 1.1% to 0.7%, while keeping the forecast for 2024 at 2.6%. Slightly worse growth outlook this year stems from weakening domestic demand and negative credit growth for households. Inflation should fall to 10.5% y/y by the end of 2023, while interest rates should remain stable. Chief analyst of Polish economy from S&P Global Ratings said that risk factors regarding the rating both in the short-term and in the long-term remain balanced.

Next week will bring a solid dose of monthly economic data (more details in the calendar) enabling to assess the condition of Polish economy in February. In particular, retail sales data is likely to show a deepening fall in consumer spending, while another decline in PPI should reinforce the disinflationary outlook on the producers’ side.