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Macroeconomic scenario

Economic growth

After final set of key economic readings for March we decided to once again lower our forecast for Q1 2024 GDP growth. We think it came in at 1.6% yoy and not 2% or 2.5% yoy as we thought earlier. The main disappointment was consumption growth. Nevertheless, we decided not to revise our growth forecast for the full 2024 just yet (3% yoy). Growth in the Eurozone in 1Q 2024 surprised on the upside, which gives hope that foreign demand for Polish industrial goods will rebound more strongly than we expected - especially since the ECB will probably cut interest rates in June.

Inflation

The cards related to regulated factors and their impact on the inflation path have finally been uncovered. We estimate that about 65% of the return to a higher VAT rate on food has already been realized in April (which added about 0.5-0.6 pp to inflation), with the rest (about 0.3 pp) to be spread over the coming months. In turn, the government's draft indicates a partial unfreezing of electricity and gas prices for households, which will bump up inflation at the beginning of the second half of the year by 1.5 pp to 4% yoy. We further assume that inflation will be near 4.5% yoy at the end of 2024. In turn, core inflation will asymptotically decline over the year. At the same time, we realize that good labor market situation together with the upcoming economic recovery will cause core inflation to rebound, but only in late 2024/2025.

Labour market

Nothing new on the domestic labour market - wages continue to grow at a rate clearly exceeding inflation, the unemployment rate is decreasing and employment remains negative year-on-year. Real wage growth in the coming months will be around 10%, but will decline in the second half of the year due to rising inflation and a simultaneous slowdown in wage pressure. Employment will move in the opposite direction and, as the economic situation recovers, it will start to record positive levels in 3Q23. It will be accompanied by a decreasing unemployment rate, and in the coming months we will see its record low reading below 5.

Monetary policy

The Monetary Policy Council is in wait-and-see mode. Inflation is still within the target, but with double-digit wage growth and a rebounding economy, it is impossible for it to stay there - especially as the energy price hike takes effect in July.  MPC members are aware of this and have been consistently cooling down expectations for cuts before the end of the year.