TOP MACRO THEME(S):
- Housing market on the path to recovery: Revival in transactional volumes and return to increasing housing prices were the main market trends in 1q23.
WHAT ELSE CAUGHT OUR EYE:
- CPI inflation in June declined further to 11.5% y/y from 13.0% y/y in May. Fuel price drop, lower core inflation as well as decelerating energy and food prices were conductive to the decline of CPI vs. May. For the first time in 2 years a monthly fall in food prices was recorded (with the exception of the introduction of Anti-inflationary Shield in Feb’22). Core inflation surprised positively falling stronger than expected, most likely to approx. 11% y/y.
- According to preliminary data, the budget deficit after May increased by 10.8bn PLN against April to 20.8bn PLN. Budget deterioration stemmed from a negative impact of lower tax burden on labour and reduced VAT rates. On the expenditures side, higher debt service costs and defence spending contributed most to the worsening of the budget balance. However, we link this deterioration to anticipated “fiscal consolidation” involving a shift of off-budget expenses towards including them in the state budget. We maintain our forecast for the public finance sector deficit at 5.4% GDP in 2023.
- Registered unemployment rate in May fell to 5.1%. The number of unemployed for company reasons was 0.8% lower than in May 2022, while those unemployed for longer than a year fell by 20% y/y. Hence we see no potential for a significant increase of unemployment rate.
THE WEEK AHEAD:
- MPC meeting (Thursday) will most likely bring no change in interest rates. More noteworthy will be a new inflation and GDP projection. Its (likely) downward revision, in particular inflation’s prompter return to the upper bound of deviations from the target (3.5%) may give the MPC more comfort for a discussion on the interest rate cuts.
- We expect a slight deterioration of manufacturing PMI as output and new orders continue to fall.
NUMBER OF THE WEEK:
- 12.1 bn PLN – additional spending on national defence (as of May) in comparison to the amount assumed in the budget act.