NBP President Glapiński repeated his earlier assessment that January and February will bring increases in inflation. He also stated that inflation remains high. According to the NBP, the main reason for the currently high inflation is expensive energy. On top of that, the jump in costs is spilling over into other categories of the inflation basket causing core inflation to rise and fail to protect money value.

Moreover, Glapiński noted that the global economic situation is deteriorating and GDP growth in the world economy in 2023 will be significantly lower than in 2022. The weakening is due to high energy and commodity prices. At the same time, the risk of gas shortages in Europe has clearly decreased. The most pessimistic scenarios have not materialized and the economic outlook for the European economy has not collapsed.

However, the latest GDP data confirm a further weakening of the Polish economy.

According to the preliminary estimate, Poland’s GDP fell by 2.4% quarter-on-quarter in the fourth quarter of 2022 after rising by 1.0% QoQ in the third one. The economic growth was choppy in 2022. Based on full 2022 data, ING estimate that the fourth quarter saw household consumption decline by around 1.5% YoY, while investment went up by more than 5% YoY. Both changes in inventories and net exports contributed positively to annual growth in the final quarter of 2022.

The beginning of the year will be difficult. Analysts forecast economic growth of 1% in 2023.

In Glapiński’s view, there will be a rapid decline in inflation after the first quarter, to around 8% on average in the fourth quarter. According to the NBP president, headline inflation may fall to 6% year-on-year in December. Glapiński pointed out that this is not the final policy target and that in the following years, the NBP will aim to bring inflation as close as possible to 2.5% (NBP official target).

On the one hand, during the press conference, the NBP president said that the current level of NBP interest rates (6.75%) is adequate to bring inflation down to the target. He also reiterated on a couple of occasions that it is too early to talk about rate cuts and that the Council has not closed the hiking cycle, not least because there is uncertainty as to how prices will behave in January and February.

On the other hand, the rest of the communication on the NBP’s inflation target was reportedly vague. The NBP president has stated several times that single-digit inflation is acceptable. At the same time, he pointed out that countries wishing to have rapid GDP growth must accept higher inflation. In ING’s view, the launch of the easing cycle before the end of 2023 would be a premature action with the risk of entrenching high inflation expectations.

High inflation negatively affects the real disposable income of households, which translates into reduced consumption. In turn, high interest rates and weaker prospects for domestic and foreign demand are weighing on companies’ investment plans. However, investment activity may be supported by the public sector in 2023, including military spending, which will, however, simultaneously undercut imports.

ING analysts see several arguments against rate cuts in 2023:

• at the end of 2023, core inflation should still be a couple of times higher than the target
• a drop in CPI to single digits in the fourth quarter should be caused by the reversal of supply shocks, which are out of the NBP’s control
• Poland has a strong labor market despite the GDP slowdown, and a record-high percentage of companies are planning to raise wages
• an overhang of high energy prices, which were frozen in 2023.

Still, ING doesn’t rule out the possibility of small rate cuts in the second half of the year, as external disinflationary processes intensify (large improvements in supply chains, falling commodity inflation, falling commodity prices. It seems that the majority of the Monetary Policy Committee is looking mainly at the headline CPI inflation rate and is targeting a soft landing while paying less attention to the persistence of core inflation.

Manufacturing continues to benefit from improving global supply chains, supporting production in some industries (including automotive, electrical equipment, and machinery). Solid increases have also been seen in the production of pharmaceuticals, food, textiles, and clothing. Deep declines were seen in chemicals, metals, computer, and wood manufacturing.

Analysts expect GDP growth in 2023 to be mainly driven by net exports, with domestic demand falling. Such a composition of growth should favor disinflation, but price increases are expected to be pushed by costs rather than pulled by demand. Consumer price growth in 2023 should be in double digits, with stubbornly high core inflation.