TOP MACRO THEME(S):
- Inflation is back in town: CPI inflation in August unexpectedly rose to 16.1% y/y from 15.6% y/y. All main categories except for fuels contributed for the rise in inflation.
- Investment demand revival: GDP growth in 2q22 slowed down to 5.5% y/y from 8.5% y/y in 1q22 due to significantly reduced increase in inventories and to a lesser extent negative net exports. Deep quarterly GDP decline (-2.1% q/q sa) was a “payback” of previously borrowed growth from future. That said, it is likely that investment demand revived as a remedy to inflated corporate costs.
WHAT ELSE CAUGHT OUR EYE:
- The government has passed a draft state budget for 2023, with a deficit of PLN 65 bn. The macroeconomic assumptions for the next year include CPI inflation at 9.8% and GDP growth at 1.7%, both close to our forecasts. The projected deficit of the entire public sector in 2023 (in ESA methodology) in the budget draft law is 4.4% GDP, which is the same as the European Commission's latest (May) forecast. Significant spending increases are assumed, among others, in the defence area and public debt service. Additional spending (as yet unspecified in the bill) will include mitigating the costs of the energy crisis for households and companies as well as the likely extension to 2023 of anti-inflationary shields.
- The manufacturing PMI in August fell for the sixth consecutive month, to 40.9 pts (vs 42.1 pts in July). This is the weakest result since May 2020. The decline was again a result of the slump in the production and new orders sub-indices. It is the fastest and steepest downward episode of the PMI index below the 50-point level excluding April 2020. The PMI index probably overestimate the scope of manufacturing downturn, same as in the pandemic.
THE WEEK AHEAD:
- MPC should increase the reference rate (on Wed, 7 Sep) by 25bp to 6.75%. From the one hand, the Council should react on CPI inflation spike, but incoming weak data from the economy should make them more cautious.
NUMBER OF THE WEEK:
- 7.1% y/y – investments growth rate in 2q22 as previously signalled by corporate investment demand data.