Poland: Both industrial output and PPI surprise on upside
Both industrial output and PPI surprise on upside Prices in the production sphere picked up by 0.4% in May, pushing the annual dynamics up to 2.3%, from the 1.7% seen a month ago. This was moderately faster than both we and the market anticipated (2.1%).
The monthly growth was pulled primarily by higher prices in mining and quarrying (+4.8% m/m), on the back of more expensive metals. Manufacturing saw a much milder rise of 0.2% m/m, on par with its yearly dynamics.
Industrial output outpaced the market consensus by a relatively high margin at 13.4% y/y. It strengthened by 7.3% m/m, with annual growth thus rocketing up to 19.1% y/y. This was helped by one more working day in comparison to last May. Hence, the number adjusted for seasonal and working day effects was a bit lower at 15.6%. Nonetheless, the released figures indicate solid economic activity in the second quarter. The GDP growth should move around 5% in 2Q. Also, the pickup in productivity was solid, easing fears about the harmful impact of wage dynamics on inflation.
MPC member Pietrewicz was again quick to reassure the markets that the central bank’s inflation outlook has still not changed with the released data.
Even though we agree with this view, we have altered our interest rate forecast and no longer expect a cut of 25bp to materialize this year. Instead, the key rates should stay flat through the end of the year. The reason lies primarily in the exchange rate development. With higher volatility and the rise in major market yields, the appetite of investors to take on risk has decreased, limiting the scope for zloty appreciation (even though fundamentals remain solid). We thus expect the exchange rate to fluctuate around 3.90 EURPLN at the end of the year. The lower speed of appreciation is also justified by the continued political noise. Small populist parties are pushing for higher social spending, while Self-Defense allegedly strives to get its nominees appointed at public media and state-owned companies. This creates potential conflict with the ruling PiS party, which maintains that the posts should be occupied on the basis of individual abilities.
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