Polish Twist

Excerpt from Danske Bank*

[ Macro and political outlook

 Polish economic growth remains solid. Private consumption is being boosted by the child benefit cheque, record low unemployment (which fell to an all-time low of 6.6% in October) and higher real wage growth. Furthermore, increasing absorption of EU funds is adding to investment activity, which grew 20% y/y in October. Given the strong performance, Danske has raised their GDP forecasts for this year and next to 4.6% and 3.8%, respectively (from 4.0% and 3.5%, respectively). On the political front, the conflict with the EU has died down for now amid delays in forming a new German government and Brexit negotiations. The reshuffling of the Polish government on 8 December is unlikely to substantially alter the direction of economic policies until the next election, but it may improve relations with the EU.

Monetary policy outlook

 The National Bank of Poland (NBP), particularly governor Glapiński, is in no hurry to raise monetary policy rates despite headline inflation increasing (reaching 2.5% in November). However, according to the minutes of the meeting on 8 November, several MPC members are beginning to feel uneasy about the monetary policy stance. However, the core inflation pressures have remained fairly constant in recent months. Danske expects the headline to fall back slightly in the coming months before rebounding in April given the increase in domestic inflation pressures. The financial market is pricing in a 25bp hike over the next year, which Danske thinks is too dovish, as Danske expects a rate hike in early Q3 2018. ]

Headline Comparison

Polish Export Destinations

The top export destinations of Poland are Germany ($53B), the United Kingdom($13B), the Czech Republic ($12.7B), France ($10.8B) and Italy ($9.4B).

Poland Trade Balance

As of 2016 Poland had a positive trade balance of $9.6B in net exports. As compared to their trade balance in 1995 when they had a negative trade balance of $6.52B in net imports.

PLN/CHF Monthly Chart

1st Target : 0.3000

2nd Target : 0.319

Swiss Franc and Japanese Yen continues to be a good funding asset for risk-on trades.

Exhibit 14 shows a simple central bank scorecard, summarizing how far central banks are from full capacity (horizontal axis) and their inflation goals (vertical axis)

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Nicholas Koh