The current account deficit was €3.9bn in April, following a €3.0bn deficit in March. ING Bank estimate that, on a 12-month basis, the balance deteriorated from -2.2% of GDP to -3.0% of GDP (the largest 12-month deficit since April 2013). A surplus in services balance of €2.2m did not offset high deficits: in primary income (€2.8m) and secondary income (€0.9m). Foreign trade performance reflects the impact of the war in Ukraine: an increase in fuel import bills and a collapse in trade with Russia. The annual dynamics of imports of goods, expressed in euro (22.6% year-on-year) clearly exceeded the dynamics of exports (6.7%). Global disruptions contributed to a decline in exports of automotive parts, TV sets, and household appliances. The high import dynamics were driven by 75% higher crude oil prices than a year ago, as well as record-high prices of natural gas and coal. With everything reflecting on rising costs of credit.

Industrial production increased by 15.0% year-on-year in May, following an increase of 13.0% YoY in April. The seasonally-adjusted index declined by 1.7% month-on-month. This was the second consecutive month of monthly declines in seasonally-adjusted output. Producer prices (PPI) increased by 24.7% YoY last month, compared to a 24.1% YoY increase in April. Upward pressure from commodity prices continues, including prices of coke and refined oil products (93.4% YoY). Metal prices were also growing strongly (45.3% YoY). Food processing prices were rising as well (27.1% YoY). Although leading indicators point to a deterioration in Polish manufacturing, the slowdown in domestic industry is not abrupt. ING analysts estimate that in annual terms, industrial production growth in 2Q22 will be slightly lower than in 1Q22, which was very good. Symptoms of a marked economic slowdown are visible in the construction industry though. Construction output increased by 13.0% YoY in May, following 9.3% YoY growth in April. The figure surprised the upside, but the outlook for the sector is negative due to the weakening demand for housing as a result of increased uncertainty and the rising costs of credit. The industry is also struggling with high input prices and staff shortages.

At the same time, consumer demand remains strong. At the moment, this suggests GDP growth close to 6% YoY in 2Q22. A substantial economic slowdown is expected in the second half of the year when the negative consequences of the war in Ukraine will become more evident in terms of weaker demand for Polish exports and disruptions to supply chains. Moreover, rising prices and interest rates will dampen consumer demand, which is expected, however, to be sustained by refugee purchases. For the full year, ING estimates GDP growth at 4.7%.

The 24.7% YoY increase in producer prices confirms that upward pressure on prices remains high, and recent readings of core inflation measures confirm that companies have no problem passing on higher costs to the prices of their finished goods. This process is likely to continue in the coming months, resulting in a further increase in core inflation. To bring inflation under control, the National Bank of Poland will have to continue raising interest rates. Discussions about the end of the rate hiking cycle in Poland or about the space for rate cuts in 2023 are, in analysts’ opinion, premature and may negatively impact the Polish zloty rate. At the moment, there are no signs of a reversal in the rising inflation trend and significant upside risks to inflation are seen from the surge in administered prices in early 2023.

Retail sales rose 8.2% year-on-year in May, following a 19.0% YoY increase in April. The large swings in the annual growth rate of retail sales over the past two months were a consequence of the pandemic restrictions that were in place last year. High demand was observed in the case of necessities, namely clothing and footwear (17.7% YoY), pharmaceuticals and cosmetics (15.4% YoY), and food and beverages (10.5% YoY). Purchases made by Ukrainian refugees are contributing to this. Durable goods (cars, furniture, consumer electronics, household appliances) were noticeably less popular. The increase in prices slightly reduced the demand for fuels. Consumer demand, boosted by fiscal expansion, remains strong despite rapidly rising prices. ING estimates annualized consumption growth in 2Q22 to be higher than in 1Q22. Strong consumer demand means that upward pressure on prices will continue. In July, the monetary policy council (MPC) will raise rates: the scale of the hike will depend on the June inflation estimate and the NBP July macroeconomic projection.