GDP growth forecast lowered (afternoon analysis 21.01.2019)

China's GDP did not disappoint, but the IMF cut global growth forecast, including in the euro area. Start of the week was calm on the currency market. Greater volatility expected in the case of the pound around Theresa May's speech.

The euro zone lags behind

The week on the markets began relatively calmly. Investors could breathe a sigh of relief when it turned out that data on China's GDP did not fall below expectations and was at the level of 6.4% year-on-year. The rate of economic growth was the slowest since 1990 (for the whole 2018), but the slowdown was expected and is not particularly strong. It is worth mentioning here the new forecasts published today by the International Monetary Fund (IMF) for the global economy.

The IMF estimates that the global GDP growth rate will slow down to 3.5%per year in 2019 and will be the slowest in three years. The slowdown already observed is mainly due to advanced economies. One of them is the eurozone - the forecast for GDP growth rate has been lowered from 1.9% year-on-year from the October projection to 1.6%. For the US and Chinese economies, the forecasts remained unchanged at 2.5% and 6.2%, respectively.

Whether the scenario estimated by the IMF will really come true depends to a large extent on two factors. It depends on what happends with the euro area's economy and on trade negotiations between the US and China. Both are basically interlinked. The economic slowdown is clearly affecting Europe, which, moreover, is already reflected in the data coming from the largest economies of the region. The failure of talks between the USA and China and the resulting restrictions in international trade (higher tariffs, lower demand) may put even more pressure on European countries, and to a much lesser extent affect the US.

Despite the uncertainty as to the number of interest rate increases, including the partial government shutdown in the US, which has already lasted more than a month, the dollar is currently in a relatively better situation than the euro. This is also reflected in the current euro/dollar quotations - the EUR/USD exchange rate was around 1.1360 this afternoon, while a week and a half ago it rose to as much as 1.1570. Taking into account the approach of central banks in both the US and the euro area, the incoming data on, among other things, economic growth and inflation will be very important in the context of monetary policy, and thus important to both regions' currencies.

However, the most important event of this day will probably be the UK Prime Minister's speech in the House of Commons this evening. Theresa May is to present a plan for a Brexit, the so-called 'plan B', because her first plan was rejected. Uncertainty remains high all the time, but with regard to the pound, the information coming in is positive for him in the long term. The risk of a "hard", chaotic Brexit still exists, maybe even slightly increased, but at the same time there is a wider range of other possible solutions indicating a more mild departure from the EU (or even non at all).

The volatility of the currency market later in the day should therefore be largely limited to the pound, while the quotations of other currency pairs should stabilise around current levels. This is also the scenario for the zloty, which volatility was within a very limited range today. The reason for this relatively high calm was also the lower investor activity in the US due to Martin Luther King's Day.

Tomorrow's preview

At 10:00 a.m. the Central Statistical Office (GUS) will publish retail sales data for Poland in December. Data on average wage growth and industrial production published at the end of the last week by the GUS turned out to be clearly below market expectations. This has had a limited impact on the zloty so far, but another portion of harder than consensus data may weaken the zloty. The median of market expectations indicates an increase in retail sales by 7.7% year-on-year.

The Office of National Statistics (ONS) will present at 10:30 a.m. data from the British labour market, of which the most important for the pound may be data on changes in the average wage growth. Including bonuses, its growth rate in November is forecast to remain at a similar level as in the previous month, i.e. 3.3 % year-on-year. Although these are important data for the economy as they affect inflation, and therefore expectations as to monetary policy, one should not be under any illusion that they will have a significant impact on the British currency in current market conditions. The most important factor for the pound remains remains the same - Brexit, and also how interest rates will develop in Great Britain depends to a large extent on what form Brexit will take. The market situation now suggests that the market expects a softer form of exit from the EU. Better-than-expected data may therefore support the British currency a little, while worse -than-expected reading may have a relatively neutral impact.