Articles
17 July 2020

Poland: NBP projections call for continued easing stance

Below consensus 2020 GDP in the National Bank of Poland staff projections assume a weak 2Q20 or sluggish recovery in 2H20. The projection supports our call of a lengthy dovish stance by the central bank, and possibly even further easing

Downbeat 2020 GDP projection likely due to weak consumption

The NBP sees GDP contracting by 5.4% year-on-year in 2020. We hold a below consensus 2020 GDP forecast, but we are not as bearish as the NBP (INGF -4.0%, consensus at -3.5%/-3.8%). The pessimistic NBP forecasts for 2020 GDP assume a very low 2Q20 GDP estimate (-10.6% YoY vs consensus at about -8%), and in our view the NBP sees a deep weakening in market services. The demand for services is less volatile than the demand for goods (retail sales), so it smooths the consumption drop during the downturn. This does not hold during the pandemic as lockdowns and concerns over new infections significantly hit these parts of the economy. There are no high frequency data from the statistical office which capture the market service sector, but the NBP likely has a better insight here from the survey it runs among companies. We share the NBP’s low expectations with regards to consumption of services, despite the solid recovery in retail sales. Some leading indicators in services seem to support this call, even though we are less pessimistic on overall GDP growth.

There are other reasons behind the pessimistic NBP view on a 2H20 GDP recovery. In its baseline the NBP assumes no second wave of the pandemic. The central bank points out a few downside risks, ie, expiration of government aid schemes, deteriorating labour market condition and households’ low propensity to spend. Low consumer propensity to spend is consistent with our own research – according to ING surveys in 13 countries, Poles are surprisingly cautious about new expenses, given the low number of Covid-19 cases and very large fiscal programmes.

The NBP may eye further monetary easing

Despite recent comments from some Monetary Policy Council hawks, the Council is likely to maintain a very accommodative policy over a very long time. If anything, the MPC should be more inclined to deliver additional easing, most likely via extended asset purchases. The two latest post-meeting statements underlined the role of a weaker zloty as a measure to foster the recovery from the pandemic. Preventing PLN appreciation may have been a key reason for the rate cut in May. However, since then €/PLN has remained relatively stable despite the NBP conducting a massive quantitative easing.

This likely reflects foreign investors being heavily underweight in Polish bonds and have very limited options to short PLN. Hence depreciation of the zloty has been limited so far during the crisis. The MPC preference for a weaker zloty may also decide on some form of rate cuts, especially if a second wave of Covid-19 hits.

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