WOOD Flash – Poland macro: it’s easy to spend in the good times

As the election race heats up, the ruling PIS party congress has delivered a long list of new fiscal measures aimed at boosting their odds of re-election in the October general election. The party is proposing to widen the child benefit scheme, increase pensions, introduce voluntary payments for social security contributions for SMEs, and increase the tax free threshold for all. The aggregate best guess cost, if the implementation is “generous”, is as much as PLN 60bn. Our best guess for the implementation of the measures, is that they will be phased in, so that they boost growth at a time when there is a global downturn. The impact on the budget appears modest in 2019E and 2020E, if we assume no severe global recession that would push Polish real GDP growth down to, or below, 2%. In our view, this should cement the MPC’s stance on stable policy rates and, while it should be positive for consumption and the housing market, the benefits to corporate margins may prove small, as it would increase wage pressures. As the impact on the budget is probably going to be mild if global conditions remain benign and the measures are introduced over time, our models suggest that the fair value of the 10-year local sovereign bond yield is around 3.5% and that the currency would have potential for appreciation, although we suspect that if any appreciation materialises, the NBP will turn dovish once more.