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Erste Group on Polish macroeconomy

February 1, 2013
The preliminary GDP figure for 2012 came in at 2.0%, in line with market expectations. Net exports contributed the most to the figure. Consumption had only a slight positive impact, while investment remained neutral (for details, see our Short Note). Although the 2% growth is still one of the most dynamic in comparison to other European countries, the slowdown was increasingly visible (the economy grew by 4.3% in the previous year) and the structure of growth may arouse some concerns about future growth. Domestic demand, which has historically been a pillar of growth, slowed from 3.4% in 2011 to a meager 0.1% last year and consumption posted negative growth in 4Q. This is the main factor which will drag growth down this year as well. We expect the economy to grow by 1.6% in 2013. 

Inflation expectations have been steadily dropping lately. In December, they dropped to 2.7% (from 3.4% the previous month), confirming that there is little inflationary pressure, while more than half of those surveyed expect price levels to grow at the same pace over next 12 months. As the labor market situation has worsened and households limit their consumption spending, at this point we see no factors which might elevate the headline figure any time soon. We believe that the inflation figure may drop even below the lower boundary of the target of 1.5% at the beginning of 2Q13. 

Falling inflation (2.4% y/y in December) and weak economic releases (industry contracted by 10.6% y/y, retail sales dropped by 2.5% y/y and economic growth is at 2%) suggest that monetary easing will be continued. Zielinska-Glebocka and Belka commented that lowering the interest rate at the next meeting is rather certain. The announcements confirm our expectations that MPC will deliver another 25bp cut next week and that the policy rate will be 3.75%.