Market Summary by AFORTI: Poland's GDP, NBP forecasts and Inflation
August brings us a series of disturbing information regarding the condition of the Polish economy. The decline in GDP and clear signals of a slowdown in household consumption demand may be a clear signal that we have entered a phase of stagnation - or even recession.
Poland's GDP fell in the second quarter of 2023 by 0.5 percent. year to year. The market priced the situation more cautiously – at 0.3%. Such a difference means that the Polish economy is slowing down very quickly. Let us recall that in the previous year, we had an increase of 6.1%. This shows how sharply we are slowing down and how much we can be afraid of a very strong cooling of the economy.
It is difficult to look optimistically at the NBP forecasts, which say that the decline in domestic demand in 2023 will be small - around -1.8%, when in our opinion the decline may be much larger. We still observe high inflation and the popular slogan of "disinflation" is only free inflation - which, unfortunately, is superimposed on the "base effect" - which means that the currently calculated inflation is based on already realized growth, so its nominal increase is still high.
Stopping the increase in interest rates at such a moment, or even the expected reduction, is, in our opinion, a highly erroneous action that can only fuel further price increases. Recall that we have official interest rates at 6.75%, while inflation is still above 11%.
The obvious question is how it can translate into exchange rates. Certainly, the current situation puts the zloty under pressure and suggests that the trend of PLN depreciation against the EUR will continue. The strong support point of EUR/PLN 4.4000 was not broken and the zloty took a “north course”. One can expect in the coming days to test the upper resistance of EUR/PLN 4.5000, and the closer to the election the more nervous the situation will be.
Looking "over the water", i.e. at the exchange rate of the American currency - the situation is quite similar - that is, the zloty loses and it is rather difficult to look at the level of USD / PLN 4.0000 at the moment. The 4.0800 level turned out to be a strong support level and we can expect USD/PLN 4.1000 to break out quickly. Thus, the zloty clearly shows its weakness at the end of the summer.
It can be assumed that at higher levels, exporters will enter into futures contracts, which may help the zloty a bit - but the question arises what level they have budgeted - to achieve the highest possible sales revenue. On the other hand, we must remember that raw material imports also translate into higher production costs, which may make our exports less profitable.
Looking at the EUR/USD, i.e. the balance of power between Europe and the United States, we can observe a fairly calm strengthening of the single currency in relation to its American side. The 1.1040 level has proven to be an important resistance level and we are currently seeing a wedge forming which will likely be corrected depending on data coming in September. Our assessments indicate that this means a few weeks of consolidation towards 1.0840. We will write about whether this will actually be the case in subsequent reports.
Let's talk briefly about capital markets. The previously mentioned strong resistance on the WIG20 at the level of 2,200 was not overcome – as we forecasted. It is currently in a holiday weakness, but the 2,000 support level has not been broken - which is an optimistic signal. The WIG also slowed down and after reaching the level of 72,000 and its short break - it fell significantly by over 4,000 points, which shows that the main players of the stock exchange are doing better than the rest of listed companies.
As for foreign markets - it seems that we have a positive sentiment on the stock market due to increases in the Nasdaq and S&P 500 indices and the activity of the bulls, which may suggest a return to the bull market lasting since January.
Szymon Jańczak
Dyrektor Departamentu Skarbu
Aforti Exchange S.A.