Monitoring Poland: Resilient economy, persistent core CPI

In 2022 the Polish economy proved to be resilient to the war, energy shock and rate hikes locally and abroad. The economy slowed in 2H22 but performed better than expected. Diversified manufacturing benefited from the global reopening and improvement in global value chains. In 4Q22 GDP grew by 2.3% year-on-year with strong exports and investment, but very weak consumption. We see upside risk to 1Q23 GDP and our above-consensus 2023 GDP forecast of 1%.

The 4Q22 GDP backdrop was disinflationary, but the labour market is tight. According to the central bank, the percentage of companies planning wage hikes rose to an 18-year high (62.3%) due to labour hoarding and 19.1% increase in the minimum wage. We expect CPI to rise to 18.1% in Jan and peak at c.20% YoY in Feb. CPI should then drop by half to c.10% YoY in Dec-23 and global disinflation of tradable goods calls for even faster disinflation. But the problem is the persistency of high core inflation. The current GDP and inflation backdrop doesn’t justify rates cuts in 2023, on the scale the market is pricing.

On 16 February the ECJ spokesperson should present a provisional opinion, whether banks may charge clients for cost of capital, even when a CHF mortgage is terminated due to abusive clauses. This is a second big step in the CHF mortgage saga. In the case of a negative ruling, local banks may be forced to raise provisions significantly, which could undermine their demand for POLGBs. This is an important systemic risk, as it needs to be tackled by policymakers. It explains PLN underperformance vs CEE FX recently and may also affect POLGBs. A non-conclusive ECJ ruling would be seen as positive.