Trade integration has resulted in both economies becoming increasingly synchronised, with the chart below illustrating the correlation between the German IFO survey and Polish industrial production. With that in mind, a slowdown in German economic activity will have significant spillover effects in Poland.
We also highlight the sharp slowdown in real M1 money growth to 8.3% YoY in March from a cyclical peak of 18.4% in May 2016. Shifts in liquidity growth are typically a key leading indicator of the business cycle and so although real M1 is still growing at a rapid clip, the deceleration is likely to weigh on economic activity in the near term.
(Click on image to enlarge.)
Source: Bloomberg, Macrobond and Variant Perception