Dreadful forecast by OECD (Daily analysis 6.03.2019)

A collision of excellent data from the US economy with the disastrous forecasts of the OECD for the eurozone. The ECB meeting continues to be in the limelight. The zloty remains stable. The euro is close to the 4.30 PLN limit, but the global strength of the US currency pushed the USD/PLN pair above the 3.80 PLN level.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

• 4:00 p.m.: Publication of a statement following the Polish MPC meeting and the range of inflation and economic growth estimates from the latest NBP forecasts.

Increasing divergence between the US and the eurozone

Recent hours have shown that there is a large difference in the economic situation and prospects for GDP growth between the US and the eurozone. Non-industrial ISM index reached less than 60 points in the United States. This is a very high objective reading, which at the same time was clearly above analysts' estimates (57.4 points). The key component of this index, i.e. new orders exceeded 65 points, i.e. it rose to its highest level in more than 15 years. In Europe, analogical PMI indexes are close away from highs and rather close to long-term lows.

The latest OECD economic forecasts also show the growing gap in further economic growth in the USA and the single currency area. Compared to November 2018 estimates, GDP growth in the US for the current year has been revised downward by only 0.1 percentage points and is expected to reach 2.6%. In the case of the eurozone, the downward revision was as much as 0.8 percentage points, to 1.0%.

Even more profound negative revisions appeared for Germany and Italy. In the case of Germany, it amounted to 0.9 percentage points, i.e. up to 0.7% in 2019 as a whole. According to OECD estimates, Italy is expected to be in recession this year, and its GDP will shrink by 0.2%. This is as much as 1.1 percentage point worse than last year's estimates.

In the context of monetary policy, this creates the following signals. The US economy this year and next year (for 2020 the OECD change was even up to 2.2%) will develop above potential. This means that the Federal Reserve will continue to have a free hand in tightening monetary policy if it turns out that rising wages start pushing inflation above the target. The discussion about rate hikes may return in the second half of the year.

In the case of the eurozone, the opposite situation is happening. Monetary policy will remain extremely mild, and that probably means that there will be no rate hikes this year as well as next year. That should be the message from the central bank if it turns out that the ECB's forecasts on Thursday will be the same as those published today by the OECD. On the basis of the available data, there is an increased risk that the euro will be under pressure tomorrow and that the US currency will profit from this.

Interesting Polish MPC meeting

Because today's OECD estimates have been interim, there are no forecasts for Poland. However, this gap may be filled by NBP estimates, which will be partially announced today, and full data will probably appear on Monday.

The MPC's stance on interest rates in the statement will remain unchanged, but a broader discussion at a press conference may provide an answer whether members have received any calculations on the hypothetical impact of fiscal changes on the path of inflation and GDP growth. This may be the beginning of a discussion on tightening monetary policy, although the impact of this element on the zloty will be rather limited. Therefore, the baseline scenario is that the EUR/PLN exchange rate is still close to the 4.30 boundary.