What will 2021 be like for the Polish economy?
| Key macroeconomic parameters | 2019 | 2020 | 2021P |
|---|---|---|---|
| GDP growth (YoY) | 4.2% | -2.8% | 3.8% |
| Domestic demand (YoY) | 3.5% | -4.1% | 3.9% |
| Private consumption (YoY) | 4.0% | -3.4% | 3.7% |
| Investment (YoY) | 7.2% | -6.5% | 1.1% |
| Inflation (EOP) | 3.4% | 2.4% | 3.7% |
| NBP reference rate (EOP) | 1.5% | 0.1% | 0.1% |
| CHF/PLN (EOP) | 3.92 | 4.22 | 4.03 |
| EUR/PLN (EOP) | 4.25 | 4.56 | 4.40 |
Source: mBank’s estimates as at February 5, 2021. YoY – year on year, EOP – end of period.
The bank expects Polish GDP to rise 3.8% in 2021, bouncing back to the 2019 YE levels as early as Q3 2021. GDP will be growing sluggishly in H1 2021 (net of seasonal effects, quarter on quarter). As the 60+ population in Poland and key trade partners get vaccinated, we expect that the lockdown will be lifted in large part in H2, unlocking demand and driving considerable GDP growth. The recovery will continue to rely on exports. Once the lockdown is lifted, consumption will also pick up fast (possibly starting in Q2). Investments will lag behind GDP growth, eventually picking up in H2, not least supported by the timeline of public expenditure.
The labour market should gradually improve in 2021. Early months will most likely (still) be difficult. The official unemployment rate may rise temporarily to 6.5% on the back of corporate restructuring and under the pressure of the lockdown. However, in our view, companies have already optimised/scaled down their headcount so restructuring will be incidental. Additional unemployment will mainly be driven by growing frictional unemployment; as soon as demand picks up, it will be absorbed by the economy. We expect the unemployment rate to drop to 5.9% by the year’s end.
Inflation in 2021 will be lower than in 2020. It will bottom out in Q1 with CPI approaching 2%. However, that CPI low will still be higher than expected several months ago. In particular, January will bring changes to energy prices similar to those witnessed last year (rising electricity prices, additional capacity fee, falling gas prices). A new sugar tax and retail trade tax will also kick in. Core inflation will exceed earlier estimates. Inflation will rise gradually during the year, exceeding 3% in late 2021. Core inflation should follow a moderate downtrend, reflecting the time lag of economic slowdown and the statistical base effect. There will be no similar raise in prices of certain goods and services caused by the lockdown. On the contrary, some of them may even be lifted.
In our opinion, the Monetary Policy Council will keep the rates unchanged in 2021. Additional tools will be deployed under the umbrella of NBP, including structural operations and FX interventions. This is our baseline scenario provided that PLN remains under appreciation pressure, especially in H1 (see the section below). The RPP rhetoric in late 2020 inspired some speculations that the rates could be cut. In our opinion, this is not going to happen and the rates will remain unchanged. A scenario of further rate cuts (which could even turn negative) hinges on a radical deterioration of the macroeconomic scenario, undermining GDP growth in the coming quarters. The horizon of a worldview featuring further rate cuts extends well beyond a temporary extension of the lockdown (which could happen since the pandemic patterns are very volatile). As long as going back to normal is on the horizon, rate cuts are not part of the baseline scenario.
Our bank expects that the Polish zloty will remain weak for most of the year. NBP’s firm position on the FX rate (substantiated by interventions last December) has stopped many market participants from betting on appreciation of the zloty. Fundamentally, however, PLN is poised to appreciate thanks to the current account surplus, large EU transfers and strong cyclical economic recovery. In our opinion, PLN’s appreciation potential will materialise on a small scale in H2 2021, when RPP/NBP should no longer be interested in keeping the currency weak (to support exports, as per the RPP rhetoric) while some appreciation of the zloty would open the door to a modest tightening of financing conditions in a period of rising inflation.
| Banking sector – monetary aggregates | 2019 | 2020 | 2021P |
|---|---|---|---|
| Corporate loans | 3.0% | -4.8% | 3.6% |
| Mortgage loans | 6.6% | 7.3% | 4.4% |
| Non-mortgage loans | 5.1% | -3.8% | 5.2% |
| Corporate deposits | 10.0% | 19.0% | 4.3% |
| Household deposits | 9.7% | 10.7% | 5.5% |
Source: mBank’s estimates as at February 5, 2021.
We expect lending to step up in 2021, including both household and corporate loans, driven by economic stabilisation and the start of a new uptrend phase in the market cycle. However, the growth will not be spectacular because companies and households hold significant cash deposits. It is an open question where the record-high cash withdrawals will go. They might make their way back into the banking sector. That represents an upside risk for deposits and a downside risk for non-mortgage loans. What is important, however, is that new loan volumes will be gradually rising. The relatively low growth rate of mortgage loans mainly reflects the FX effect and continued repayment of the CHF portfolio. PLN loans will rise at a rate close to that reported in 2020.
Outlook for mBank
| Net interest income & NIM | (negative) |  |
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| Net Fee & Commission income | (slightly positive) |  |
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| Total costs | (neutral) |  |
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| Loan Loss Provisions & FV change | (slightly positive) | |
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