UPDATE 1-Retail sales point to deepening Polish slowdown

by on July 26, 2012 9:09 am BST

Thu Jul 26, 2012 5:09am EDT

* Polish retail sales, jobless data for June disappoint

* Readings weak despite EURO 2012 championship

* Data point to deepening slowdown, faster rate cuts

WARSAW, July 26 (Reuters) – Poland’s retail sales and
unemployment data proved weaker than expected in June, pointing
to a further deterioration of economic fundamentals and
reinforcing market expectations that the central bank could soon
consider cutting interest rates.

Retail sales rose 6.4 percent year-on-year last month, below
the 8.95 percent forecast that was largely underpinned by hopes
that Poland’s co-hosting of the Euro soccer cup in June would
boost consumption.

Analysts also expected that a strong seasonal rise in job
creation, as often reported in the summer months, would also
leave less Poles out of work.

“The unemployment data could point to a more serious
slowdown of the economy,” said Wojciech Matysiak, economist at
Bank Pekao.

The largest central European economy expanded by an
impressive 4.3 percent in 2011, one of the fastest rates in the
European Union, showing strong resilience to the ongoing
financial turmoil in the euro zone, Poland’s key trading

But after four years of a shaky global economy, Poland may
now be slowly but surely losing steam, with its growth rate
expected at 2.5-3.0 percent this year and much uncertainty as to
the outlook for 2013 and beyond.

The zloty weakened 0.1 percent against the euro
immediately after the date release, with bonds also reflecting a
gloomier economic outlook. The two-year bond yields fell 2-3
basis points.

“We thought that the Euro 2012 championship would have a
clearly positive impact on (retail) sales, but this factor had
only a moderate influence,” said Mateusz Sutowicz, analyst at
Bank Millennium.

“It is clear that the situation on the labour market is
limiting consumption. The data fits into a scenario of a gradual
slowdown, which supports the arguments of the dovish wing of the
Monetary Policy Council.”

Two members of the 10-strong MPC have recently called for
interest rate cuts as soon as at the Council’s next rate meeting
in September and said that the 25 basis points rate hike in May
was a mistake.

Poland’s central bank raised borrowing costs in May because
it believed back then that the risks from tolerating
persistently high inflation were greater than from the looming

Inflation has held above the bank’s 2.5 percent target for
most of the last five years and accelerated to an annual 4.3
percent in June.

In the latest Reuters survey, most analysts said they
expected the central bank to keep rates steady at 4.75 percent
this year and cut them in the first quarter of 2013.

Forward rate agreements are pricing in the first 25
basis point cut in the next three months.