Tendencies in the Polish and global economies in 2015 and their effect on the Group’s results

We forecast that the economic growth in Poland will accelerate to 3.6% in 2015 (from 3.3% in 2014), with the first half of the year being weaker and the second one being stronger (up 3.0-3.5% and 4.0-4.5% y/y respectively).

In the external environment of the Polish economy, the year 2015 should bring a moderate improvement. With the continuation of the negative tendencies in the East (a deep recession in Russia), a moderate acceleration in the economic growth in the euro area will be of more significance to the domestic economy. The main risk factors in the external environment are: slow-down in the economic recovery in the euro area (i.e. due to concern about Greece) and the possible re-escalation of the conflict in Ukraine.

We forecast that the economic growth in Poland will accelerate to 3.6% in 2015 (from 3.3% in 2014), with the first half of the year being weaker and the second one being stronger (up 3.0-3.5% and 4.0-4.5% y/y respectively). In 2015, the GDP growth will be backed by low oil prices, public investments, and reduced interest rates which may add a total of +1.5 pp. to the GDP growth. This will be counteracted by the recession in Russia and the appreciation of CHF which may subtract a total of -0.8 pp. from the GDP growth rate in 2015. The strongest positive effect on the GDP growth in 2015 will be the drop in oil prices which – by releasing approx. PLN 20 billion in the balance sheets of the private sector – may add 0.7-1.1 pp. to the GDP growth rate, as well as public infrastructure investment projects (the value of the signed agreements for road construction projects exceeded PLN 12 billion), which may add another 0.5-1.0 pp. to the GDP growth. The strongest negative effect on the GDP growth may be the recession in Russia subtract from GDP dynamics approx. 0.6 pp. (assuming an accumulated drop in exports to Russia in the years 2014-2015 similar to the drop in the years 2008-2009, i.e. of approx. 40-50%).

We predict that the situation on the labour market will continue improving in 2015 (a periodic increase in demand for labour), which will positively contribute to a drop in the registered unemployment rate to approx. 10.5% at the end of 2015 (-1.0 pp. y/y), with 1.65 million people remaining unemployed. The acceleration in the nominal increase in wages and salaries and deflation will accelerate the growth rate of real disposable income to 3.9% y/y in 2015 compared with an estimated 3.1% in 2014.

In January 2015, the growth rate of consumer prices dropped to -1.3% y/y from -1.0% y/y as at the end of 2014. We predict that the CPI inflation rate will be fairly stable until March 2015 and will then start increasing only to return above zero in the fourth quarter of 2015. The increase in inflation will result from the low base effect (the temporary deflationary factors of 2014 will expire) and the strengthening of the demand pressure for price increases. In spite of the gradual increase in CPI inflation during 2015 we forecast a drop in the average annual CPI inflation rate to -0.4% compared with 0.0% in 2014. The reaction of the prices of agricultural raw materials and energy resources remains the most serious risk for this forecast.

Despite the fact that the increase in deflation is mainly due to external factors, its scale and duration encouraged the Monetary Policy Council to continue adjusting the NBP interest rate levels by 0.5 pp. in March 2015. At the same time the MPC has declared outright that monetary policy easing cycle has been completed. Further reductions are unlikely due to the anticipated increase in inflation and improvement in the GDP growth rate which may exceed 4.0% y/y in the second half of the year.

In the banking sector, we predict an acceleration in the growth rate of loans as a result of increased demand for loans on the part of the private sector, increased supply of loans (with the announced continuation of the banks’ policies of introducing less stringent lending criteria in respect of consumer loans and loans to enterprises) and a reduction in the Lombard rate. According to our forecasts, in 2015 the growth rate of deposits will slow down slightly accompanied by a smaller increase in the growth rate of the deposits of non-financial business entities (with substantial investments and better financial results of companies) and a slight decrease in the growth rate of the deposits of individuals (with a stronger interest in saving methods alternative to deposits at a time of record low interest rates).

The direct effect of the decision of the Swiss National Bank to lift the restrictions on the EUR/CHF exchange rate on the Polish economy (consumption and GDP) through an increase in debt servicing costs should be very limited. Less than 600 thousand households, which service loans in CHF, will have to curb their consumption due to higher debt servicing costs by no more than 0.1% of GDP. A negative wealth effect (the increase in the CHF/PLN exchange rate means a decrease in the net assets of households, which can make the indebted households less prone to consumption) may be an additional risk for consumption. The potential deterioration of consumer sentiment and the possible refraining from purchasing durable goods (cars, furniture) during the period of increased volatility on the foreign exchange market is also a risk.