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Macroeconomic scenario

Economic growth

Polish GDP grew by 2.0% yoy in Q1 2024, which is exactly what we expected before the downward revision of forecasts a month ago. We were misled by very weak readings of retail sales and industrial production in this period. However, we have forecasted the structure of GDP correctly. Consumption turned out to be the driving force behind the growth, although it grew slower than households' income. On the other hand, investments turned out to be weak (-1.8% yoy) due to the EU funds cycle. In the coming quarters, the economy will continue to accelerate (to 3.7% yoy in Q4 2024), still driven by strong consumption. Only in 2025 will the second engine be added – investments financed with funds from the National Recovery Plan.

Inflation

The current stay of inflation around the NBP target is short-term and will last until June. From the second half of the year, the shape of the inflation path will be strongly affected by the partial unfreezing of energy tariffs for households. We estimate that this will translate into an increase in electricity bills by about 20% and gas bills by 15%. This will instantly increase inflation by more than 1 pp. to almost 4% yoy. At the end of 2024, inflation will be in the range of 4-4.5% yoy. Core inflation, on the other hand, will asymptotically decrease to its minimum in this cycle over the course of the year of approx. 3.5% yoy. High wage growth along with the accelerating economic recovery will bring us closer to a rebound in core inflation, but it will not be a dynamic process.

Labour market

It seems that the long-awaited moment for the domestic labour market observers has finally come – the annual wage growth decreased for the second month in a row by more than 0.5 pp. This means that the rate of wage growth is converging faster and faster to inflation, and we are probably not dealing with an anchoring of wage expectations. The lack of positive surprises in the data for May will be a solid confirmation of this trend and will give a chance for wage growth to fall below 10% this year. The unemployment rate is also getting closer and closer, which probably equaled the all-time record in May, and in the coming months it will break it, falling below 5.0% for the first time ever. Employment, on the other hand, is stagnating, but the large scale of work hoarding gives hope for its rebound in the coming quarters.

Monetary policy

The Monetary Policy Council consistently maintains a hawkish stance to monetary policy, taking into consideration excessive wage growth and consequences of unfreezing electricity and gas prices from July. Inflation will move back away from the target, and to make matters worse, the economic recovery will result in higher core inflation. MPC members speculate that in the second half of 2025 there will be room for rate cuts, but in our opinion this will happen in 2026 at the earliest.