TOP MACRO THEME(S):
- Dry loan tap has frozen the market: The large drop in demand for mortgages is a textbook reaction of the market to a series of interest rate hikes. Weaker lending activity results in in a decline in sales of dwellings. The period of dynamic price increases in the housing market is coming to an end and we think a correction is likely in the coming year. At the same time, a strong increase in construction costs, with no possibility of further price increases, will limit the new supply.
WHAT ELSE CAUGHT OUR EYE:
- Falling real labour income in May (amid weaker employment and wages growth rate lagging inflation) as well as darkening consumer sentiment in June indicate that Polish retailers will face a shake-up as consumers trade down to beat rising prices. Only a basic stuff has recorded positive growth rates of sales in May, boosted by refugee spending.
- A robust expansion in industry continued in May, with capital goods output rising most – an indication that a shift in the structure of economic growth is likely (more investments, less consumption), but it is still too early to herald this. Indeed, business sentiment survey for June revealed that high costs of investment goods and elevated inflation still weigh on investment demand.
- Narrow money (M1) adj. for inflation declined in May by a whopping 12.4% y/y indicating a technical recession in Poland in coming quarters.
- Banking stats revealed that PLN mortgage growth rate (+8.6% y/y in May) hit a speed-bump and was even lower than in the post-GFC and pandemic crisis episodes. Declining housing starts (at a 25%-ish rate in May) bode ill for construction output, which held up well yet in midst 2q22.
THE WEEK AHEAD:
- CPI inflation in June has been mercilessly heading north, most likely crossing ‘a-15-per-cent’ river.
- Manufacturing PMI in June stayed in a recession territory (on our estimates).
NUMBER OF THE WEEK:
- 6.83% – 10Y POLGBs yield as of June 24, 133bps lower than 3 days earlier.