In the external environment of the Polish economy, the year 2016 should bring a moderate improvement., which is however, fraught with multiple risk factors. We expect a continuation of the recovery in the euro area, supported by a further loosening of monetary policy and low oil prices. The main risk factors for the euro area are continuing debt problems of Greece, the possible occurrence from the European Union of the UK, the consequences of the migration crisis and the situation in emerging economies. The crisis in emerging economies may have two reasons: the outflow of investors after interest rate hikes by the FED and the deepening economic slowdown in China. The fall of raw material prices and the strengthening of US dollar will contribute to the continuation of the recession in Russia, accompanied by a tightening fiscal policy due to the decrease of income from oil exports.
We are forecasting that in 2016 Poland’s economic growth will remain stable at around 3.5% (as in 2015), the weaker in first and stronger in the second half of the year. GDP growth in 2016 will support primarily loosening of fiscal policy at the central level (which can strengthen 1.0 p.p. GDP growth), which will mitigate the slowdown in public investment (railway and local government, which can have negative affect 0.6 p.p. from GDP growth) and negative credit boost associated with the introduction of additional capital requirements and the tax burden for the banking sector (negative contribution of this factor in GDP growth is estimated at -0.3 p.p.). Keeping up (or continued decrease) the lowest oil prices for more than a decade affects the extension of deflation period, positively affecting the real purchasing power of consumers. In 2016, the structure of GDP growth will most likely change, private consumption supported by fiscal policy (500+ program) will be the main engine of growth in domestic demand (and GDP).
We anticipate that strong growth in the demand for labour in 2016 will be continued and will affect drop in registered unemployment rate to approx. 8.9% at the end of 2016 from 9.8% at the end 2015. In the 2015-2016, we assume stable growth in real disposable income in the range of 3.5% y/y, while we anticipate that 2016 will be similar in terms of increased growth of nominal wages and CPI inflation.
In December 2015, the growth rate of consumer prices amounted to -0.5% y/y. Until September 2015, CPI inflation should be relatively stable, oscillating around zero, and then start to grow to achieve approx. 1.0% y/y in December 2016, it will end a period of over two years of deflation. The rise in inflation in the 4th quarter of 2016 will be due to the low base effect (temporary disinflationary factors at the end of 2015) and the strengthening of demand pressure on prices. The gradual increase in inflation will lead to an increase in average annual CPI inflation to 0.2% y/y in 2016 vs -0.9% y/y in 2015. The most serious risk factor for this forecast is the behaviour of the agricultural raw materials and energy prices.
Despite almost zero inflation for most part of the year, we expect that MPC will keep the CPB interest rates unchanged, as indicated by the expression of new Council members, the weakening of the Polish zloty exchange rate, expansionary fiscal policy of the new government and the continuation of economic growth exceeding the growth rate of potential output.
In the banking sector we anticipate a steady growth in loans (approx.. 6% y/y in Q4 2016 and in the 4th quarter of 2015, adjusted for exchange rates) as a result of the demand for credit from the private sector (the effect of the economic recovery and growth investments) under record-low interest rates of the CPB. According to our forecasts, there will be a slowdown of growth in deposits (up to approx. 7% y/y in Q4 2016 of 9% y/y in Q4 2015; 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 and the expected rebound in consumption).