Data published today by the Central Statistical Office (GUS) confirmed a 3.4% GDP growth of the Polish economy in the second quarter of this year, with the structure showing that household consumption has strengthened as the main driving force of economic activity. Investment was disappointing: after rising in the first quarter of this year, not only did it fail to maintain the upward trend, but it actually declined. However, previously published data on corporate investment gives hope that this important component of economic growth will also improve in the coming months.

This is especially true since we expect interest rates to be cut by 25 basis points as early as this week. This scenario is supported not only by today’s GDP growth data but also by other economic indicators. Strong retail sales growth in July (up 4.8% y/y), faster industrial production dynamics (up 2.9% y/y), and gradually improving exports—despite still weak demand in European Union countries, our main foreign trade market—as well as lower labor market pressures with slower wage growth (7.6% y/y in July) and negative employment growth (-0.9% y/y), and above all, a further decline in inflation (to 2.8% in August), are all significant arguments in favor of an interest rate cut by the Monetary Policy Council at its meeting concluding this Wednesday.

In our opinion, the next interest rate cut (another 25 basis points) will come in November, after the Council reviews the new inflation projection, and next year we expect three more reductions in the cost of money. However, these assumptions may be revised due to the projected increase in the state budget deficit, a potential rise in inflation if energy prices are unfrozen, or higher uncertainty in global markets.

Grzegorz Sielewicz, Director of the Economic and Market Analysis Department for the Central and Eastern European region at Colliers

(WBJ)