Macro: COVID-19 Update Poland: Improving outlook with pandemic still a risk

COVID-19 development: New daily record high numbers of cases have been reached in August, however by the end of the month it seemed to have been brought under control, if not reduced. A new system is far from a lockdown observed in April and includes people limits in cinemas, gyms or wearing masks in red zone spaces.
Economic development: Poland seemed already at the beginning of pandemic less at risk of severe recession: Q2 GDP actually managed to surprise to the upside with a drop by 8.2% yoy. Our full 2020 forecast of -4.1% yoy is at risk of a higher outcome. However, we also see negative risk for Q4 and expect to see delayed, negative consequences on the labour market from September and thus for now we refrain from upward revisions.
Fiscal policy implications: Poland stood out in terms of the scale of fiscal support which proved crucial for limiting the negative impact on economy; however: the general government deficit will result in a debt-to-GDP ratio at around 12% in 2020 and 6% in 2021.
Monetary policy implications: On the monetary side the rapid and sizeable rate cuts in Q2 brought the key rate from 1.5% to 0.1%. This leaves little room for action in case of another shock, while other non-standard tools may be more important in such situation. However, with CPI now lower compared to the 4.3% yoy peak in Q1 and expected to decline below the middle of NBP target range (2.5%) this also will be an argument for keeping interest rates low for longer. We expect no interest rate hike during the rest of this MPCs term which ends in Q1 2022.

This Research was produced and first published by Raiffeisen Bank International AG which is supervised by the Austrian Financial Market Authority and the National Bank of Austria.