Uncertainty about a potential agreement
In response to rising tensions in the region, the U.S. Secretary of State assessed that the Strait of Hormuz must remain open "either way" (Reuters, here). Marco Rubio also added that the negotiated agreement with Tehran could "take a few days," thereby reducing expectations that had built up over the weekend. Even before the night events, Reuters reported on a visit by Iranian officials to Dushanbe.
One official familiar with the matter informed the agency that the talks focused on the Strait and high‑enriched uranium stocks, as well as the potential release of frozen reserves. Brent crude at the start of today’s session in Europe was quoted near 98 USD/b – about 2% above yesterday’s close. The reaction to the latest reports is muted, possibly due to unofficial information suggesting that the night exchange of fire does not signal the end of the ceasefire (PAP, here). In the coming hours investors will closely analyse the situation in the Middle East. Despite a mild reaction, the optimism observed on Monday may quickly give way to concerns about maintaining most supply constraints for energy resources from the Gulf.
Holiday confusion around sales data
Yesterday the GUS closed a series of monthly real‑sector indicators. The annual pace of published retail sales turned out lower than our expectations and market consensus. After seasonally adjusting, the aggregate moved down by -2.8% m/m according to GUS, but only -0.6% m/m in our calculations. This aligns with the observation that in March the GUS data grew noticeably stronger than our estimates (+3.3% m/m vs +2.0% m/m). This divergence is linked to the spread of this year’s Easter over effectively two months. Some holiday purchases had to be made in March, when Easter usually falls deep in April.
This resulted in a significant drop in spending on clothing and footwear. This category recorded a record‑high seasonal factor in March, and for the first time in history a negative one in April. Conversely, fuel spending rose above average, reaching the highest level in history (according to our calculations up to 14.3 bn PLN per month, about 7.5% of total private household consumption). This remains to be interpreted as both an effect of the government’s CPN program (“Lower Fuel Prices”) and a possible increase in mobility (many regions recorded a historically warm Easter during those days).
In the rest of the basket we see mainly volume declines. Automotive, furniture (RTV+AP), and paper sales fell. Symbolically, food consumption rose, and health spending continued on a clear upward trend (40% above pre‑pandemic levels vs total sales +13% vs GDP +18%).
Yesterday’s publication therefore closes the roughly holiday‑period disturbance of readings caused by the spread of Easter purchases over two months. Thus, we see no reason for pessimism about further consumption growth. Another channel from a different publication (labour market data) could be the recent drop in nominal wage growth, but we recently mentioned that this reading also had a significantly irregular component. We still expect GDP growth this year with a leading edge according to our March‑end scenario.
Stable expansion of the banking sector
In April the annual growth of M3 money supply remained above 11.0% y/y for the second month running. That’s a good result, slightly above our forecast. It occurs against a backdrop of nominal GDP growth of about 8.0% y/y, raising the M2‑to‑GDP (money velocity) ratio above 70% of GDP. On the liabilities side growth is unchanged, largely driven by the M1 aggregate but with a significant cash contribution in circulation. Thus, cash in circulation now exceeds 12.0% of GDP, a level previously seen only transiently during the “COVID” years (2020‑2021). On the assets side, the M3 aggregate grew mainly thanks to loans with a significantly weaker contribution compared to earlier years of net foreign assets. Household loans grew at 5.4% y/y, and non‑financial corporate loans at 11.5% y/y.
Again, deposits held by local governments are rising to historic highs. The NBP reported that after seasonally adjusting they already exceeded 120 bn PLN due to growth in both current and term deposits, now accounting for 3.1% of GDP.
This is one of the higher deposits in the EU. The scale of free funds held by local authorities in EU countries is generally smaller (average in EU27 1.9% of GDP). Only Luxembourg (3.4% of GDP) and the Czech Republic (6.8% of GDP) outperform Poland. The publication therefore adds little new, as we have already described the above cash expansion and JST deposit growth for some time (see here and here). Its tone, however, supports the scenario of supporting the current revival around the Vistula.
Some ambiguity in the results of enterprises 50+
Yesterday GUS released data on the results of non‑financial enterprises 50+ in Q1. It shows that revenue for this group is accelerating from 2.9% y/y to 5.7% y/y towards the nominal GDP growth pace (8.0% y/y). Net profit of companies is growing at 15.2% y/y, improving profitability for another quarter in a row, now to 5.1% of revenue versus a local trough of 4.7% a few quarters ago. However, at higher levels there is also a reported net loss. It amounts to 72.5 bn PLN annually, about 1.2% of revenue and 1.6% of GDP. That’s quite a lot compared to the historical series (see chart on the left). Consequently, the net result (sum of profits and losses) is close to the historical minimum of 5.2% of GDP. Liquidity assessment also deteriorated by over 5 points from the historical quarterly maximum a quarter ago at 48.9 points.
Although the reported liquidity deterioration is concerning (in March the first possible difficulties emerged due to rising fuel prices), we do not view it with alarm. A greater concern is the persistent scale of reported net loss, while Poland records almost the highest GDP growth in the EU. While this is not currently dampening the business cycle, unresolved in the long term it can permanently reduce potential growth rates. We believe, however, that the greater probability lies in normalising this variable.
