BZ WBK MACROscope - Too early for changes
(Date: 2012-02-14)
The start of the year saw a significant improvement in economic sentiment and market moods.
- Large number of economic publications were better than expected, and money started to flow into risky assets. The improvement was also visible in the Polish market. As regards the macroeconomic data, the flash GDP data for 2011 (4.3% growth) turned out to be higher than expected by the market (yet in line with our forecast), while January’s PMI index surged, exceeding most of forecasts (including ours). In the Polish financial market there was a very short-lived correction of the zloty at the start of the year, which followed by a significant and uninterrupted appreciation by almost PLN0.4 versus the euro. Polish bonds have also benefited from the improvement in global moods, despite more hawkish rhetoric of the Monetary Policy Council, which did not exclude a possibility of a rate hike.
- Does the recently seen improvement in economic indicators justify a change in economic scenario for 2012? The significant growth in January’s PMI was indeed impressive and if we add an improvement in OECD leading indicator, then it may appear that some improvement in economic situation may take place. However, in our view the continuation of negative trends is still visible in some areas. Firstly, trends observed in the labour market (fall in employment, rise in unemployment, wage growth below inflation level) are not optimistic. Secondly, their impact on consumption growth can already be seen. While data for entire 2011 were quite robust, the breakdown of growth has shown that some significant changes took place during last year. Even though fixed investments showed a double-digit annual pace of growth in Q4, private consumption rose only by ca. 2%YoY, while total consumption recorded a lower growth rate than in 2009. As such a low pace of consumption will probably maintain and investment is likely to slow down, it is difficult to expect that pace of GDP growth will be close to 4% in 2012. Therefore, we stick to our forecasts for this year. A change, however, can be triggered by a positive surprises in macroeconomic figures for February and March (January’s data will be positive), which would imply a GDP growth in Q1 above 3%YoY.
- Will the improvement of global market sentiment prove persistent and does it change scenario for the zloty exchange rate for 2012? In our view it is too early to announce that the euro zone debt problems have come to an end, hence we still see a major risk of substantial zloty weakening against the euro (and drop of EURUSD at the same time). Our forecasts of EURPLN exchange rate for end-February are at 4.30 and such a scenario will probably trigger a correction on bond market. A significant drop of inflation in January (and further in February-March) should limit expectations for MPC interest rate hikes and can change the rhetoric of MPC members comments.