The Polish economy should reach a bottom in 1H23 but recovery in 2H23 could be sluggish as the main growth engine from last year (consumption) will improve only gradually with lower CPI and some election spending.
Net exports should be the main growth driver depending on uncertain foreign demand. CPI peaked in February at 18.4%YoY but should fall to single digits in 3Q23 and 2024. July’s NBP projection is likely to bring a lower CPI trajectory and the NBP may provide a single cut in 2H23 (50% possibility), also referring to strong PLN. We see risk of persistently high core CPI at c.5% in 2024- 25.
To achieve the 2.5% target, Poland needs a paradigm shift in policy, ie, nominal wages growth below 5%YoY, less consumption and more investment. PLN is no longer undervalued; we still see some appreciation.
POLGBs curve may keep steepening due to rate cut expectations driving the short end and risk of spending affecting the long end, both from the ruling and opposition parties.
