On the back of signs that Germany and the eurozone are slowing, we highlight the risk of a drawdown in Polish economic growth. Although Poland is ostensibly a domestic demand-driven economy, it is still highly trade dependent (exports + imports are above 100% of GDP) and heavily integrated with the German industrial machine. Over a quarter of exports are shipped across the Western border, with machinery and transport equipment making up the lion’s share.

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.)

Charts supporting the slowdown in Polish economic growth

Source: Bloomberg, Macrobond and Variant Perception