The central European currencies depreciated slightly on Friday. The Zloty and Forint eased by about 0.5 percent and Czech koruna by approximately 0.3 percent. The release of PMI is the main event in Central European region today.
According to the Markit agency the Czech and Polish manufacturing sector remains in the recession zone or under the key 50 mark. However, the Polish PMI increased from 47.3 to 48.2 and was above the market consensus of 47.4 in November. The Czech PMI Manufacturing came out at the same level as in Poland i.e. 48.2 points. Hungary was the only exception - the PMI indicator rose above the 50-mark (from 49.9 to 52.3). The Polish PMI index is below the 50 mark dividing growth and recession for the last six months and its development
confirms the message sent by the GDP figures.
The Polish data showed a much stronger growth deceleration than both we and the market had expected. The GDP was up by 1.4% y/y (our forecast was 1.8%), and its structure sparked particular concern. While in the post-Lehman year of 2009, Poland could rely on the positive contributions from consumption (notably individual consumption) to growth, Friday’s figures are much more pessimistic in that regard, because the deceleration was primarily based on domestic consumption and investment. The figure is likely to trigger a reaction, as a central bank meeting is scheduled for this week and the market unanimously expects the NBP to cut rates by 25 bps. Moreover, we cannot even rule out a more aggressive monetary easing, notably in the upcoming quarters, because growth is most likely going to drop below 1%. This is why we currently see latitude for rate cuts by at least an additional 75 bps (including this week’s rate cut).