Poland: Recovery and strong zloty in 2024

• Indications of rebound already visible.

• NBP turns hawkish.

• Yields to slowly move down.

• Zloty to remain strong next year.

After another interesting quarter, we can already see the first signs of a rebound in the Polish economy. The high-frequency indicators have been surprising to the upside, while 3Q GDP data showed annual growth for the first time this year. The anticipation for the next year is a rebound pushed by consumption, which could be pro-inflationary. Therefore, inflation will not be declining at such a fast pace as in previous months, and we see it stabilize at around 5% next year. However, only the new government’s next steps will bring more clarity, not only on the inflation path, but also on the NBP's decisions in 2024.

As the NBP turned hawkish in autumn, the FX rate sharply appreciated, with no indications that this will be reversed soon. Moreover, the EUR 5bn in prefinancing from the RePowerEU chapter, paired with the normalization of relations with the EU, support the zloty even further. The financing needs are covered for this year, with approx. 20% of pre-financing to be done by the end of 2023. Next year, the need to borrow will be slightly higher than in this year, depending on the pace of fiscal consolidation.

GDP (real,y/y)

Source: Erste Group Research

GDP

Indications of rebound already visible

The third quarter presented a contrasting picture compared to the first half of the year, suggesting that the lowest point was reached in 2Q. The growth rate for this quarter was recorded at +0.4% y/y, with consumption seeing a rebound of +0.8% y/y. However, the two primary factors influencing this year’s performance are inventories, which are projected to deduct approx. 4.5pp from growth, and the trade balance, which is expected to contribute an additional 3.7pp. Investments continue to exhibit robust growth, due to the urgency to utilize the remaining EU funds from the previous funding period before the year-end. Due to the positive factors, we have revised our 2023 forecast upwards by 0.2pp to 0.4%.

Next year, we anticipate a significant recovery in consumption, driven by robust wage dynamics and the overall growth of disposable incomes. Highfrequency indicators already suggest this trend, as retail sales have exceeded expectations recently. The gap in EU funding between two funding periods will be mitigated by the inflow of the RRP funds, which are expected to be released soon. Poland has already been promised EUR 5bn as pre-financing, which should be utilized next year. Furthermore, the negative impact of inventories on GDP should diminish, while net exports will also moderate. We project a growth rate of 2.7% for 2024, and 3.2% for the subsequent year.

GDP (real, s.a., q/q)

Source: Erste Group Research

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