Daily analysis 13.02.2015

, author:

Piotr Lonczak

The euro inched higher after GDP reports. Greece to resume negotiation with Troika. The Polish economy missed expectations.

Today's reports on GDP were supportive for the euro. The GDP growth in Germany exceeded expectations – it stood at 0.7 percent quarter on quarter against 0.3 percent projected. It was also a better result than in the preceding three month period.

Solid GDP growth came after a poor third quarter, when the economy was close to a recession. Gaining momentum in Germany is a very good information not only for the euro zone, but also for Poland. The Central Statistical Office informed that the share of exports to Germany rose to 26.1 percent in 2014.

Moreover, the GDP growth in euro zone was better than estimated. It stood at 0.3 percent – more than 0.2 percent in the preceding period. This shows, that the monetary union is gaining momentum.

However, the optimism cooled as the euro zone is not uniform. Three countries – Finland, Greece and Cyprus – posted negative growth in the fourth quarter. The GDP drop in Greece comes after thee quarters of growth in a row. Moreover, France and Italy disappointed. First country growth was only 0.1 percent, and the second stagnated after falling into recession.

Nevertheless, the euro zone is in a good position to improve economic performance. The European Central Bank launched government bonds purchases program worth 1.1 trillion to spur growth and inflation. It will be a catalyst for measures introduced earlier – the record low interest rates and cheap loans for banks (TLTRO).

The major risk factor for the euro zone recovery is Greece. Since the Syriza – a party that is against austerity and bailout terms – took the power, the speculations that Greece would leave the euro zone have mounted.

Nevertheless, information agencies said that Greece is to resume negotiations with Troika on Friday. Athens are struggling to persuade its creditors to agree on bridge financing (described in our previous commentaries). The bottom line is Syriza government and the EU are talking before final round of negotiations on Monday. Thus, the likelihood for a compromise is quite high.

GDP disappointment

The GDP growth in Poland stood at 3 percent on a yearly basis – less that 3.3 percent in the preceding period. Expansion was slower that anticipated 3.2 percent.

The CSO released today a flash estimate – thus there is no data on structure of the growth. As a result, a deeper insight into the report will be possible in two weeks. The report is clearly a disappointment.

A slower growth is a strong argument for the Monetary Policy Council to cut interest rates in March. During its previous press conference, the MPC pointed at 3 percent growth as a satisfying pace – thus balancing near this level and record low inflation are conclusive for rates cut. Now the question is the total amount of credit cost reduction, what will be clarified next week when more reports are released.

Slower GDP reading is a negative factor for the zloty. Thus, the appreciation potential of the Polish currency has been deteriorated. If report on inflation also increases likelihood for cuts, the zloty may give away more of its Thursday's gains on Minsk agreement.

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This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without the written permission from Sp. z o.o is prohibited.

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