Industrial output not up to expectations

Industrial output in July rose 14.3 percent year-on-year GUS revealed, spurred by strong output growth in the automobile sector, as well as an increase in electricity and water supplies due to the month's sizzling temperatures and drought. The rise was slightly lower than the 14.5 percent predicted by the market.

Economists at Citibank Handlowy had expected an even larger rise.

"Although industrial output growth in July was weaker than our expectations (15.9 percent), it does not change our forecasts," said Piotr Kalisz, a senior economist at the bank, in a statement. "We expect the Polish economy to slow in H2, mainly due to stronger imports and weaker consumption growth. However, full-year GDP should rise by approximately five percent year-on-year."

Producer prices, on the other hand, rose at a rate of 3.5 percent, faster than the 3.1 percent expected by the market. Analysts put the rise down to a lagging effect of the złoty's depreciation against the euro (three percent) and the dollar (four percent) in June.

Kalisz expects prices to rise further, but still believes the Monetary Policy Council (RPP) won't raise interest rates for the remainder of the year.

"Economic expansion ought to be accompanied by moderate price acceleration but will not pose any threat to the [RPP] target. We forecast that złoty appreciation and the easing of oil price growth will lead to a slow-down in producer price growth," Kalisz said, adding: "We maintain our forecast that the [RPP] will hike rates from four percent by 25 basis points in April 2007 and by another 25 basis points in July 2007.