TOP MACRO THEME(S):
- Inflation embarks on a sluggish path downward: CPI inflation in March dropped to 16.1% y/y from 18.4% y/y in February. The decline derived from statistical base effect and normalization of energy and fuel prices.
WHAT ELSE CAUGHT OUR EYE:
- Fiscal deficit (ESA) in 2022 amounted to 3.4% of GDP. “Anti-inflationary shields” were the biggest burden both on the revenue (VAT rates cut) and expenditure side (energy compensations, migrants and military expenditures). Due to high nominal growth the debt/GDP ratio decreased in 2022 to 49.1% from 53.6% in 2021. 2023 will be marked by expenditures indexation (e.g. pensions) and revenue slowdown (nominal growth slowdown, PIT decreases, zero VAT on basic food items). We expect deficit in 2023 to increase to 5.4% of GDP. Central budget run a deficit in Jan-Feb of PLN 0.1 bn vs PLN 11.2 bn surplus in Jan-Feb 2022.
- MPC left interest rates unchanged for the seventh consecutive month (NBP policy rate: 6.75%). The rate hike cycle remains paused and MPC is ready to relaunch it if necessary. However, the NBP Governor A.Glapinski assessed that if the scenario outlined in the NBP projection materializes, there will be no further rate increases and a rate cut will only be possible if rapid return of inflation to the target is certain. We expect two rate cuts (25bp each) in 2h23.
- PMI manufacturing index marginally decreased in March to 48.3 from 48.5 in February, mainly on weaker performance of new orders and production. The delivery times have not shortened (as in the euro area), so the scope of decline was smaller. Firms’ expectations were the best since the war.
- February CAB surprised with 2.6 bln EUR surplus after upwardly revised January reading (2.1 bln EUR). It is an effect of a record trade surplus – strong exports fuelled by earlier FDI inflows, a decline of imports and improvement of terms-of-trade. We expect further improvement of CAB balance, consistently with our medium term forecast.
THE WEEK AHEAD:
- Next week will begin with March core inflation data – we expect it to inch up further to 12.2% y/y (from 12.0% y/y in Feb). Corporate labour market data should indicate a strong wage pressure (due to lagged effects of January minimum wage hike and adjustments of wage grids) and a more pronounced slowdown of employment (limitation of new recruitment, not layoffs).
NUMBER OF THE WEEK:
- 2.24 bln EUR – the record high trade surplus in February 2023.