Erste Group on Polish industrial output growth and Labour market

Industrial output growth beat market expectations of 4.0% y/y and grew by 5.2% y/y in July. The figure was a positive surprise, as the underlying trend remains weak (PMI has decreased and the construction and mining sectors have contracted for the second consecutive month). The economic slowdown is inevitable, but the mild industrial output growth may postpone a decision on a rate cut, supporting arguments that the real economy is not in as bad a state as June’s releases might have initially suggested, and that stimulus from the monetary side is not yet needed. We therefore expect a cut to 4.5% in 4Q12.Another argument for maintaining an unchanged policy rate at the next MPC meeting is that the inflation rate remains above the inflationary target. Although the market is signaling that inflationary pressure is going down (NBP inflation expectation is 3.5% y/y, currency has appreciated, PPI figure was lower than expected), CPI may not fall within the target’s boundaries for the next few months. We expect the inflation rate to stabilize around the 2.5% target in 2013.Loose job market conditions are another sign of the upcoming slowdown. The employment rate has not changed in July and wages in real terms actually decelerated (in nominal terms, they increased only by 2.4% y/y, while the market expected an increase of 4.0% y/y). The high unemployment rate and no growth in real wages may have a negative impact on domestic demand, which has been the pillar of growth in Poland. Together with the stagnating Eurozone (and dropping exports), we expect the Polish economy to grow 2.6% in 2012.The whole note is aviable in Research and analytics.

Erste Group on Polish industrial output growth and Labour market

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