It should not look like this. In the beginning of the year estimate of economic growth at 3.5% was considered pessimistic. After a weak first half of the year, the second half was supposed to bring the acceleration of the wave of growth in consumption. But in the third quarter Poland’s economy slowed again.

The decrease in the rate of growth is not surprising inasmuch as GUS send such signals a few weeks ago. But growth at 2.5% (forecast at 2.9% and the previous result of 3.1%) in the current circumstances is a drama. We do not know its structure, but we can guess that for the slowdown is responsible fall in investment and consumption is not accelerating enough to cushion the negative shock. A year ago, we estimated that the program “500+” will have a negative long-term consequences, but it will accelerate growth even for some time due to the increase in consumption. The increase in consumption, however, was limited (despite a sizable increase in income), and the collapse of investment, largely due to delays in the use of EU funds, proved to be stronger than expected. Unfortunately, the slowdown in Poland occurs against a decent macroeconomic situation in Western Europe, which naturally means that any global shock may end up for the Polish economy very badly.

Polish Zloty (PLN) in recent days has been under a lot of downward pressure, but this is due to the national situation. The movement is assigned to a winning of Donald Trump, but this is a simplification – the first day after the election reaction to the Polish market was very calm. The reason is the global sell-off in the bond market, launched in the US. On one hand related with expectations of a more expansionary fiscal policy in the US, which will remove the burden from central banks. On the other hand, the situation in the global bond market was not sustainable. Very low or even negative interest rates combined with the upbeat trend on equity markets, while only moderate economic growth – it merits a few years, an unprecedented policy of central banks. The theory that Republicans now shift the burden of supporting the economy on the budget was only a pin which holed the balloon. Because the bonds in emerging markets are losing more and dominates here foreign capital, currency such as gold lose. Our yields model shows that the EURPLN rate in the current situation should be even higher. We expect the volatility to continue in the following days, and the key will be the attitude of the Fed. Only the US central bank in the short term seems to be able to stop the sell-off in bond markets.

EUR/PLN broke leve 4,40 but this time it was a false breakout
EUR/PLN broke level 4,40 but this time it was a false breakout

This does not mean, however, that the domestic situation is irrelevant. When the global dust settles, investors will pay attention to the deteriorating domestic fundamentals. To lower growth we have to add proceeded just lowering the retirement age. At the turn of the year   again the rating agencies will lean over Polish economy and the combination of global and domestic events will not be conducive to favorable decisions for us.

dr Przemyslaw Kwiecien

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