Tendencies in the Polish and global economies in 2017 and their effect on the Group’s results
Favourable external conditions of the Polish economic environment with numerous risk factors
The external environment of the Polish economy in 2017 should favour continuing Group development, but numerous risk factors will still play a significant role. The improvement in economic ratios recorded at the end of 2016 in Germany and other major European countries indicates possibility of sustaining solid GDP growth in the Euro area at a level of approx. 1.5%. Maintaining a moderate ECB monetary policy and weaker EUR/USD exchange rate will support continued moderate economic expansion to Poland’s main export market. The recovery of commodity prices (and general inflation) will act as a negative factor which will curb the real purchasing power of consumers and increase cost pressure on enterprises. The main risk factors for the Euro area are: a very tight election calendar (among others, the Netherlands, France and Germany), the difficult position of banks and uncertainty related to the start of the Brexit procedure. In the USA, improved economic ratios in industrial processing and the perspective of a new government loosening fiscal policy augur the acceleration of economic growth. The risk factor lies in the potentially excessive scale of USD reinforcement and/or an excessive growth rate of the Fed’s interest rates. The rebounding commodity prices constitute a positive factor for many emerging economies. In China, the structural deceleration of economic growth will continue, but the good condition of the world economy and reserves in terms of fiscal and monetary policy should allow it to avoid a ‘hard landing’. The last months of 2016 and beginning of 2017 were marked with an apparent rebound of the inflation ratios both in mature economies (USA, Euro area), and in developing ones (China). The change in the inflation environment (abating the threat of deflation) and the improved market environment will result in changes in the monetary policy of central banks. In the USA, a continued increase in interest rates is expected, and the Euro area may decide, at the end of 2017, to gradually withdraw from quantitative mitigation of the monetary policy in the following year.
Acceleration of economic growth
According to forecasts in 2017, economic growth in Poland may reach the level greater than 3%, following a temporary slow-down in 2016. The faster absorption of EU funds, high utilization of industrial capacity, good financial standing and improvement in economic ratios (an evaluation of the future potential demand) result in the revival of investment activities. The good situation on the labour market and best consumer mood ever will encourage a high growth rate of private consumption. Nevertheless, the expiration of the effect of the ‘Rodzina 500+’ programme and the considerable growth of inflation could lead to a moderate slow-down of consumption growth during the year. Thriving global trade, good economic conditions in the Euro area and the relatively weak PLN which supports the competitiveness of Polish goods, will stimulate exports. The net export contribution to the GDP dynamics should be slightly positive.
The favorable situation on the labor market
In 2017, the situation on the labour market should be continued to improve. Despite the strong growth of demand for labour, the growth of employment will still be restricted by supply factors (the resources of the available workforce running down). These factors, along with inflation (including an increase in food, fuel and energy prices), could lead to increased payroll pressure and accelerated nominal growth in wages and salaries. The unemployment rate should continue its downward trend, and at the end of 2017 it may reach approx. 7.5% compared with 8.3% at the end of 2016.
Increase in CPI inflation rate
Following an over 2-year long deflation period which ended in the last months of 2016, the beginning of 2017 should bring a quick increase in the CPI inflation rate within the admissible variation bracket in respect of the Central Bank’s target (2.5% +/-1 p.p.). Accoridng to the forecasts, in 2017, the average annual CPI inflation rate will amount to 2% compared with -0.6% in 2016. In the first half of 2017, inflation will increase mainly due to external factors (rebound of energy and commodity prices) and the effect of the low base, and in the subsequent part of the year, the ‘fundamental’ price pressure will become increasingly important (closing the negative demand gap, labour market tension, growing costs).
Interest rates unchanged
Despite the accelerated GDP growth rate and CIP inflation rate returning within its target brackets, the Monetary Policy Council will leave NBP interest rates unchanged over the entire 2017. The lack of any threat to the inflation target in mid-term and striving to reinforce the stability of the financial system will be arguments in favour of the stabilization of interest rates.
Steady growth in loans and slowdown of growth in deposits
In the banking sector a steady growth in loans should be visible (approx. 5% y/y in Q4 2017 and in Q4 of 2016, adjusted for exchange rates) as a result of the increase in supply of credit (the effect of partial reconstruction of regulatory capital by banks) and as a result of the increase in demand on credit under record-low interest rates of the NPB and revival of the domestic demand, in particular in respect of investments. In 2017 there will be a slowdown of growth in deposits (up to approx. 7.8% y/y in Q4 2017 of 8.8% y/y in Q4 2016 adjusted by exchange rate), with a weaker growth rate of deposits of non-financial entities and the weakening of the dynamics in personal deposits (stronger interest in alternative forms of saving then deposits, in conditions of record low interest rates).