Poland Macro Weekly: Less reliant on Germany?

Growing divergence between Polish and German GDP growth rates reflects:
1. stronger German dependency (esp. the output of investment goods) on the Chinese credit cycle,
2. different structure of the automotive industry,
3. strong expansion of the Polish transport sector in Germany,
4. ever stronger nearshoring, which benefits Poland more than Germany.

Inflation in April surprised to the upside across the CEE region. CPI inflation (small differences in methodologies) in Poland rose to 12.4% y/y, in Czechia to 14.2% y/y, in Hungary to 9.5% y/y and in Romania to 13.8% y/y. The increases were driven mainly by energy and food prices. Rising inflation rates fuel expectations for rates hikes, but an exception is Czechia, where newly appointed CNB governor A.Michl is extreme dove (voted against every rate hike in 2021 and 2022).
NBP governor A.Glapinski was re-appointed for the second term (6 years).
Current account deficit in March hit EUR 3.0bn, or 2.2% of GDP (the highest since Oct’14), mostly on higher energy prices. C/A deficit will remain wider than 2% of GDP in the reminder of 2022, limiting comfort space for both fiscal and monetary policy.

We estimate that core inflation in April rose to 7.7% y/y vs 6.9% y/y in March.
Flash estimate will likely show GDP growth in 1q22 of around 10% y/y, on strong low base effect, vivid industrial production and strong consumption (boosted by expenses by and on behalf of Ukrainian refugees).
Labor market was still strong in April. Wage growth likely remained at double-digit level and employment growth got closer to 3% y/y.
We estimate that PPI inflation in April was 21.9% y/y vs 20.0% y/y in March, with large impact from supply bottlenecks, commodities and energy prices.