20170927-法国巴黎银行-POLAND_Consumption_is_king__for_now__20页_1mb

Summary of "Poland: Consumption is king (for now)"

Core Content

This report, authored by Michal Dybula and Rafal Staroscik from BNP Paribas, provides an economic outlook for Poland in 2017 and beyond, focusing on growth, inflation, fiscal policy, and monetary conditions.

Key Economic Forecasts

GDP Growth

• 2017: Expected to reach 4.1% full-year growth, driven by private consumption.
• 2018-2019: Growth is projected to slow to 3.1% and 2.6%, respectively, due to capacity constraints.
• Growth Drivers: Strong private consumption, robust external demand, and improved employment.
• Growth Constraints: Weak capital spending, limited FDI inflows, and lack of skilled labor.

Inflation

• CPI Inflation: Expected to remain below the central bank’s 2.5% target in 2017-2018 due to lower oil prices and PLN appreciation.
• Core Inflation: Projected to rise above 2% by 2019, driven by wage growth and demand pressures.
• Monetary Policy: The NBP is expected to hike interest rates starting from Q3 2018, with the policy rate reaching 2.50% by end-2019.

Consumption Dynamics

• Private consumption has been the main driver of growth since 2015, supported by:
  • Strong employment and wage growth
  • Higher social transfers
  • Low inflation
• The consumption boost is expected to fade by 2018 unless additional fiscal stimulus is introduced, which is unlikely due to the risk of breaching the 3% GDP deficit threshold.

Labour Market Trends

• The labour market is very tight, with:
  • High employment growth
  • A record number of job vacancies
  • Rising minimum wages and wage pressures
• Potential risks: Labour shortages may worsen if Ukrainian workers migrate to other EU countries due to eased visa restrictions.

Investment Outlook

• Fixed investment was weak in 2016 due to delayed EU structural fund absorption.
• Expected to rebound in 2018 but slow down in 2019 due to:
  • Weak FDI inflows
  • Shortage of skilled labor
• EU structural funds are anticipated to accelerate capital spending, but this may not offset the impact of weak FDI.

Export and Competitiveness

• Export growth is expected to remain solid, but recent data suggest weakening competitiveness.
• Reasons for weakening: Stronger effective exchange rate and rising unit labour costs.
• External demand: Robust, but may not be enough to offset domestic demand-driven import growth.

External Accounts

• Trade deficits are expected to widen in 2017 and 2018, contributing negatively to GDP growth.
• Current account deficit: Projected to increase to -12.8% of GDP by 2019, but remain within the "safety zone" of below 3% of GDP.
• Fiscal risks: Increased social spending (1.3% of GDP annually) and lower retirement age (adding 350,000 pensioners by late 2018) may push the general budget deficit above 3% of GDP.

Monetary and Fiscal Policy

• Monetary policy: NBP is expected to maintain a dovish stance for now but will likely tighten policy in 2018-2019 in response to rising core inflation and global monetary tightening.
• Fiscal policy: Increased public spending and reduced tax revenues may lead to a higher risk premium and rising public debt.

Zloty and Exchange Rates

• The zloty is influenced by:
  • Manufacturing productivity
  • US financial and monetary conditions
  • The shape of the Polish yield curve
• A steepening yield curve is generally associated with a higher EURPLN.

Key Risks

• Fiscal risks: Higher public spending, especially from social transfers and lower retirement age.
• Labour market tightness: May lead to wage inflation and further strain on the economy.
• Political tensions: With the EU over the rule of law may affect the risk premium.
• Global conditions: Tightening monetary policy and rising global commodity prices could impact inflation and growth.

Financial Market Outlook

• Polish bond yields have been falling due to external factors, particularly lower market interest rates in core markets.
• Domestic factors are playing a smaller role in bond market dynamics.
• Risk premium: May rise as public debt increases, especially if the NBP maintains a loose monetary stance despite inflationary pressures.

Legal Notice

• The report is investment research under MiFID.
• It is not an offer to buy or sell any financial instruments.
• No independent verification of data is conducted by BNP Paribas.
• Legal restrictions apply in various jurisdictions, and the document is intended for professional clients and eligible counterparties.

Conclusion

Poland's economy is currently driven by consumption, with strong employment and wage growth supporting household spending. However, investment and exports remain weak, and fiscal risks are increasing. The central bank is expected to tighten monetary policy in 2018-2019 as inflation pressures rise. The zloty is influenced by global financial conditions and domestic productivity, with external factors playing a dominant role in bond markets. Overall, while growth remains robust for now, long-term challenges such as capacity constraints and labor shortages may limit future expansion.