Gloomy forecasts by the OECD (Daily analysis 10.06.2020)

The OECD gives equal opportunities to one and two waves of the pandemic. In the worse scenario, the GDP of France, Spain, Great Britain and Italy may fall by more than 14% this year, and Poland by nearly 10%. The dollar is weaker again, the zloty too.

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

• 8:00 p.m.: Statement and macro projections of the Federal Reserve.
• 8:30 p.m.: Start of a press conference with Jerome Powell, Chair of the Federal Reserve.

The EUR/USD closer to 1.14

On Wednesday, we observed the continuation of the downward trend on the dollar. The EUR/USD quotations once again came close to 1.14 - the level last seen on March 10th. The dollar index by Bloomberg (which also includes emerging country currencies) fell below 1200 points (the lowest since March 10th), highlighting the global weakness of the dollar.

This weakness of the dollar, even when combined with the positive sentiment in the equity market, is still not showing favourable signs for the zloty. These factors usually support the Polish currency, but today the zloty remained practically unchanged in relation to the globally weak dollar - quotations are still within a narrow range of about 3.91-3.94 (about 3.9160 in the afternoon).

Compared to other EM, which benefit from favourable conditions, the zloty remains relatively weak. The EUR/PLN exchange rate approached 4.47 today, the highest level since May 26th. The GBP/PLN exchange rate was about 5.0160 today, and the CHF/PLN pair was near 4.1570, which is the highest level since the beginning of June. The zloty's internal weakness is a consequence of the NBP's decision to cut interest rates in Poland, which may further weaken the Polish currency if sentiment deteriorates.

A dreadful depiction for economies

However, positive sentiment can quickly turn around if we take into account OECD macroeconomic projections published today. The organisation assumes that global GDP will fall by 6% this year, and by 7.6% in the case of the second wave of the pandemic. The OECD estimates the probability of the second wave of the pandemic at 50%.

Such severe declines (deeper than forecast by e.g. the World Bank) suggest that the global economy is unlikely to reach pre-virus levels (Q4 2019) for at least two more years. OECD data also confirm what one might have feared and what the European Commission has also recently warned about in its projections: a very varied impact of the pandemic on individual economies.

According to forecasts, the GDP of France, Spain, Great Britain and Italy may fall by about 11% this year - in the case of a single wave of cases and by about 14% in the case of the second wave of disease. Estimates are much more favourable, e.g. for Denmark - decreases by 5.8% and 7.1% respectively. In this context, Poland is more or less in the middle of the stake in the case of the examined countries with an estimated 7.4% and 9.5% reduction of GDP in 2020.

Although the OECD's rather gloomy post-COVID outlook is not surprising, the organisation stresses that it "remains highly uncertain" and that some sectors will be negatively affected by the pandemic in the long term. The main theme of this high degree of uncertainty is also present in most of the forecasts currently being issued. Meanwhile, the financial markets do not seem to want to see this, fueling the optimism supported by the emergency actions of the central banks. However, if the negative forecasts catch up with reality, then we can observe slightly worse sentiment than at present, which will translate into increased demand pressure on the dollar and as a result weaken the zloty.