Key events in EMEA next week

Poland’s industrial activity was still high in May (16.8% year-on-year) as businesses still have significant backlogs of work to fill. Nevertheless, output growth is set to slow in the coming months as the war in Ukraine negatively impacts demand from the euro area, and supply-side bottlenecks are likely to continue due to China's zero-Covid policy. In May, the manufacturing PMI fell below 50pts for the first time since mid-2020 on the back of deteriorating orders and output.

Retail sales are set to slow to 22.9% YoY in nominal terms in May after an impressive 33.4% YoY expansion in April. Substantial swings in annual growth are linked to Covid containment measures. Shopping malls were closed in April 2021 and reopened the following month, which created a high reference base for annual growth in May 2022. Sales of necessities are supported by the inflow of refugees from Ukraine.

Money supply growth gauged by M3 aggregated remained unchanged in May (8.2% YoY) vs. April (8.2% YoY). Household deposits have rebounded after earlier outflows amplified by the outbreak of war in Ukraine, and term deposit rates went up after a series of rate hikes by the National Bank of Poland. At the same time, higher rates are hampering demand for mortgage loans as they undermine the credit eligibility of potential borrowers.

In May, the registered unemployment rate continued declining and fell to 5.1% from 5.2% in April. The labour market is very tight and shortages of labour reported by many sectors are even higher as previously employed Ukrainian males left Poland to defend their homeland. This is particularly profound in the construction and transport sectors. The inflow of Ukrainian females may potentially ease labour shortages in agriculture, trade, and services.

Since April, we have seen an increasing number of measures introduced by the Central Bank of Turkey to mitigate against growing risks. These measures include putting a break on commercial loans, strengthening FX reserves, diverting local demand away from FX, increasing demand for local government bonds, and raising the attractiveness of TRY assets for foreign investors. While the effectiveness of these measures is another discussion, they signal no imminent change to policy direction and the overall monetary stance. Given this backdrop, we expect the policy rate to remain flat at 14% at the June monetary policy committee meeting.