Poland Macro Weekly: It’s payback time

It’s payback time: In 2q22 GDP grew by 5.3% y/y, but on quarterly basis it dropped by 2.3% (seas.adj.), which was the third largest drop since 1995. The high pace of inventories build-up, which has started in 2q21, most likely abruptly slowed in 2q22 marking the beginning of the normalization period. As we have already warned in early June, the high GDP growth in early 2022 was partly ‘borrowed’ from the future what means it’s payback time now.

Industrial output halted monthly declines in July and rose for the first time in 3 months (by 0.5% m/m seas.adj.), boosted by exports of investment goods. PPI inflation in July marked a turning point declining a tad (24.9% y/y vs 25.6% y/y in June).
Corporate wages rose in July by 15.9% y/y (vs. 13% y/y in June). After a two-month break wages once again rose faster than inflation. An elevated growth rate reflected one-offs (bonuses in mining). In manufacturing, trade and construction wages grew notably lower than inflation, suggesting that the still strong labour market will no longer support consumption.
Core inflation in July inched up to 9.3% y/y from 9.1% y/y in June, but its momentum has weakened and the upper bound of all core inflation measures calculated by the Polish central bank stood flat.

Retail sales and lending statistics for July will be the most interesting data prints next week as they should reveal weakness of consumers squeezed by inflation. We think lending growth in consumer and mortgage segment could have stalled in July while real retail sales growth rate barely stood in the black (PKOe: 1.1% y/y). Construction output growth in July likely moderated further (PKOe: 5.6% y/y) along with a drop in fixed investments and weakening housing market. Labour market, lagging the cycle swings, held up well in July with unemployment rate most likely bottoming out at the record low.
Minutes of the MPC meeting in July may reveal more clues on rate-setters’ attitude towards incoming recession.