The Polish authorities published a range of data releases on Friday (12 February), with strong GDP results for the fourth quarter matched by improving external imbalances. Into 2016, deflation deepened in January, raising the likelihood of further monetary loosening.
IHS perspective | |
Significance | The "flash" estimate indicated that GDP growth accelerated to 3.9% year on year in the fourth quarter. Meanwhile, the current-account deficit narrowed to a 20-year low. |
Implications | Although Poland's robust economic growth diminishes the need for further interest rate cuts, the unexpectedly weak inflation in January could open the door to more monetary loosening. Still, the depreciating zloty gives cause for caution. |
Outlook | IHS projects that Polish GDP growth will remain strong into 2016 as fiscal loosening by the new government drives up household demand. |
Polish GDP growth reached a four-year high in the fourth quarter. In seasonally adjusted terms, GDP rose by 1.1% quarter on quarter and 3.6% year on year (y/y). More details are scheduled for publication on 29 February, but IHS estimates that growth was boosted by both domestic and external demand.
Polish flash GDP (y/y, % change) | |||||
| Y/Y, % change |
| |||
| Q4 2015 | Q3 2015 | Q2 2015 | 2014 | 2015 |
GDP, total | 3.9 | 3.5 | 3.3 | 3.3 | 3.6 |
Industrial production | 5.5 | 4.4 | 4.2 | 3.4 | 4.8 |
Mining | -0.9 | -1.3 | 7.5 | -5.5 | 0.9 |
Manufacturing | 6.8 | 5.0 | 4.7 | 4.6 | 5.8 |
Utilities | -2.6 | 0.6 | -4.4 | 0.3 | 3.1 |
Construction | -1.5 | 0.5 | 1.9 | 4.3 | 2.8 |
Retail sales, including cars, nominal | 3.0 | 0.3 | 1.4 | 3.3 | 0.9 |
Retail sales, including cars, real | 5.4 | 2.8 | 4.3 | 4.1 | 3.7 |
Exports of goods and services | 9.8 | 6.3 | 7.3 | 6.4 | 8.2 |
Imports of goods and services | 3.6 | 6.4 | 4.4 | 7.8 | 4.6 |
Source: Central Statistical Office of Poland, National Bank of Poland. Data are non-seasonally adjusted. | |||||
External imbalances improve in 2015
Poland's current-account deficit shrank to a preliminary 0.2% of GDP last year, the smallest figure since 1995. The deficit was pulled downward by a shift in the goods balance from a deficit to a surplus. Moreover, the services surplus expanded, while the income deficit declined. The only component of the current account to have a negative effect on the overall balance was a widening current-transfers deficit.
Polish balance of payments (BPM6 methodology, mil. PLN) | ||||||
| Monthly | Cumulative | ||||
| Dec 15 | Nov 15 | Dec 14 | 2013 | 2014 | 2015 |
Current account, total | -1,760 | 2,475 | -4,253 | -21,034 | -34,678 | -3,285 |
Share of GDP | NA | NA | NA | -1.3 | -2.0 | -0.2 |
Trade in goods, net | 1,601 | 3,049 | -2,655 | -1,344 | -13,633 | 11,008 |
Exports of goods | 59,419 | 65,700 | 52,185 | 625,869 | 663,892 | 718,357 |
Imports of goods | 57,818 | 62,651 | 54,840 | 627,213 | 677,525 | 707,349 |
Services, net | 3,581 | 3,798 | 2,528 | 32,069 | 35,876 | 41,354 |
Income, net | -5,247 | -4,412 | -3,603 | -50,010 | -55,277 | -51,852 |
Current transfers, net | -1,695 | 40 | -523 | -1,749 | -1,644 | -3,795 |
Financial account |
|
|
| |||
Foreign direct investment, net | -4,254 | 3,673 | 593 | 13,308 | 34,336 | 26,699 |
Portfolio investment, net | -5,599 | -375 | -3,425 | 394 | -6,477 | -19,077 |
Source: National Bank of Poland | ||||||
Polish exports were boosted last year by strong sales to other EU countries, particularly Eurozone members. Sales to the European Union rose by 10.3% to reach 79% of total exports. Meanwhile, Eurozone exports jumped 15.2% last year. Sales to non-EU countries in Central and Eastern Europe plunged 21.2% last year, pulled downward by falling sales to Russia.
Disinflation deepens in January
Polish consumer prices dropped by a three-month low of 0.7% y/y in January, pulled downward mainly by plunging transport and clothing costs. Food and beverage prices increased slightly. In a month-on-month comparison, inflation fell 0.4%.
Polish inflation (% change) | |||||||
M/M | Y/Y | ||||||
Jan 16 | Jan 16 | Dec 15 | 2013 | 2014 | 2015 | Share of basket (2015) | |
Consumer price inflation, total | -0.4 | -0.7 | -0.5 | 0.9 | 0.0 | -0.9 | 100.0 |
Food and beverages | 1.0 | 0.1 | -0.1 | 2.0 | -0.9 | -1.6 | 24.4 |
Housing and utilities | -0.4 | -0.4 | 0.4 | 1.9 | 1.4 | 0.7 | 21.1 |
Transport | -4.2 | -6.1 | -6.8 | -1.8 | -2.3 | -8.9 | 9.0 |
Alcohol and tobacco | 0.1 | 0.9 | 0.9 | 3.5 | 3.7 | 1.2 | 6.5 |
Clothing and footwear | -3.5 | -4.4 | -4.5 | -4.9 | -4.7 | -4.8 | 5.4 |
Household furnishings and equipment | -0.1 | -0.5 | -0.4 | 0.8 | -0.1 | -0.3 | 4.9 |
Source: Central Statistical Office of Poland | |||||||
Outlook and implications
We project that Poland's economic performance will remain strong in 2016, benefiting from robust growth in private consumption. Household demand will be supported by a tightening labour market and rising wages, in addition to fiscal loosening by the new Polish government. Investment growth is projected to remain positive, although the rate of growth is expected to decelerate after the robust performance last year. Downside risks stem mainly from the external situation, particularly in light of the anticipated Chinese economic slowdown. Some analysts fear that the new Polish government's interventionist approach will have a negative effect on economic growth, stemming partly from the taxes on banks and retail trade organisations. Nevertheless, we expect few signs of a slowdown before 2017.
There is considerable uncertainty for the monetary policy outlook. Although we were previously expecting another interest rate cut worth 50 basis points after personnel changes on Poland's Monetary Policy Council (MPC), we now expect a smaller cut of 25 basis points in mid-2016. Although the unexpected downturn in inflation in January could provide new motivation for further monetary loosening, the recent weakening of the zloty vis-à-vis the euro has sent a warning sign to new members of the MPC, reducing the likelihood of more substantial interest rate cuts.