Annual report 2019

Macroeconomic conditions


In 2019 GDP growth in Poland remained at a high level. It is expected that within the last year GDP increased by approx. 4.2%. According to the recent available data, GDP in Poland in the third quarter increased by 3.9% YoY, slowing down from 4.6% YoY in the previous quarter. According to the CSO (Polish Central Statistical Office) data the main driver of recent economic growth is still domestic demand which increased in the third quarter of 2019 by 3.3 % YoY, adding 3.1p.p. to GDP growth. Gradual slowdown was observed also in private consumption, to 3.9% YoY. Increased social expenditure (inter alia development of the Family 500+ programme, the thirteenth pension) increasingly impact households’ spending. Additionally, decrease in investments to 4.7% YoY from 9.1% YoY may contribute to the weaker growth of domestic demand. Investments, however, have increased much more in the corporate sector than in the in the government and local government sectors, which was reflected in lower public spending, particularly made by local governments as their revenue decreased after reduction of the personal income tax rate (PIT). In the third quarter of 2019 contribution of net export was positive adding 0.8 p.p. to GDP.

Source: CSO

Business activity

In the first half of 2019, the growth rate of industrial output remained at a high level, on average close to 6.0% YoY, as compared to 5% YoY on average over the previous 6 months. The dynamics of industrial production was supported by the boom in the domestic economy, which compensated for the weakening demand of Poland’s main foreign partners. In the second half of 2019 the industrial output fluctuated, mainly as a result of the calendar effect, i.e. fewer working days in comparison to the previous year. Construction and assembly production in 2019 gradually slowed down, mostly due to weakening inflow of EU structural funds and investments. In the third quarter of 2019 the growth rate of construction and assembly production amounted to 7.6% YoY compared to 16.5% YoY. A reflection of strong consumer demand was the maintenance of the growth rate of real retail sales at the level of approx. 4.3% YoY in the third quarter of 2019. The registered unemployment rate remained close to the lowest levels since 1990 and amounted to 5.1% as at the end of November 2019.

Source: CSO


On average, in 2019 CPI inflation in Poland gradually increased by 2.3%. Since June 2019 inflation in Poland has remained close to the upper NBP (National Bank of Poland) inflation target, i.e. 2.5-3.5%. December data indicating that inflation amounted to 3.4% YoY was deemed highly surprising. The increase of inflation is driven mainly by rising food prices and core inflation Furthermore, we expect that introduced in 2020 record growth of minimum wage coupled with demand pressure will continue to support acceleration of core inflation, which at the beginning of 2020 is likely to rise to approx. 3.4%. We expect CPI inflation to rise above 3.5% in the first half of 2020.

Monetary policy

Considering CPI inflation remaining close to the target in 2019, the Monetary Policy Council (MPC) continued to maintain interest rates at unchanged levels. After the first MPC meeting in 2020, the President of the NBP Adam Glapiński pointed out that in his opinion interest rates may remain unchanged even until the end of the Council’s term in 2021. Nevertheless, we expect that the National Bank of Poland will revise its projection in March 2020, when the release of an update is planned, in such a way that the latest unexpected growth of CPI inflation will be reflected. However, at the same time considering the MPC members’ and the President Glapinski’s rhetoric we assume that MPC will tolerate inflation at the level exceeding the NBP target and will not raise interest rates. We maintain our predictions regarding unchanged levels of interest rates for this year. Nevertheless, we believe that the revision of the current MCM rhetoric is more likely, particularly in light of assumed improvement of economic situation of Poland’s main trading partners, including primarily Germany in the second half of 2020.

Source: CSO, NBP

Bonds market

In first half of 2019 yields of government bonds in Poland remained under the influence of the situation on the core markets (US and Euro zone) and domestic data on inflation, public debt, as well as investors’ expectations regarding the future monetary policy of the Monetary Policy Council. After a period of decrease in yield in the third quarter to 1.75% in the fourth quarter of 2019, yield on 10-year bond slightly increased and remained relative stable at the level of approx. 2%. The risk premium for long-term Polish bonds (measured by the spread against 10-year German bonds) in the fourth quarter of 2019 remained in the range of 225-239 bps, as compared to around 262-257 bps in the third quarter. This was favored by a sound budget situation, reflected in, amongst others, a fall in the public debt ratio to around 50% at the end of 2019.

Currency market

For most of 2019, the EUR/PLN exchange rate fluctuated around 4.30. The Polish zloty was largely influenced by external factors. The fourth quarter of 2019, however, was relatively good for the Polish zloty. At the end of the fourth quarter of 2019, the EUR/PLN exchange rate decreased from 4.38 at the beginning of October to 4.24 at the end of December. At the same time, the USD/PLN exchange rate fell from almost 4.00 to 3.80 and the CHF/PLN exchange rate from 4.05 to 3.90. The strengthening of the zloty at the end of 2019 was caused by global factors, such as the announced easing of the monetary policy of major central banks and the weakening of global risk aversion, related to the conclusion of an agreement between the United States and China.

Source: Macrobond

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