• March data were worse than every forecast in Bloomberg surveys
  • Deceleration may prove temporary as fiscal policy is loosened

Polish industrial output rose at the weakest pace in 16 months in March and retail sales stagnated, a sign the economy slowed last quarter as the new government rolls out measures to prop up demand.

Industrial production expanded 0.5 percent from a year earlier after a 6.7 percent jump in February, while retail sales grew 0.8 percent, the central statistical office in Warsaw said on Tuesday. That was worse than every forecast in Bloomberg surveys, whose median estimates were for increases of 3.9 percent and 3.4 percent, respectively.

The surprise deceleration will heap more pressure on the central bank, which has pointed to one of the European Union’s fastest economic gains as it kept borrowing costs unchanged since March 2015 despite the longest bout of deflation in 60 years. While gross domestic product expanded faster than 3 percent in 2014 and 2015, growth probably slipped below that level in the first quarter, according to Capital Economics.

“Nonetheless, we’re not convinced that this marks the start of a sharp slowdown,” said William Jackson, a senior emerging-markets economist at Capital Economics in London. “The economy should benefit from looser fiscal policy and improving labor market conditions.”

The zloty erased gains and was little changed at 4.3019 against the euro at 3:39 p.m. in Warsaw. The yield on Polish two-year zloty notes fell as much three basis points after the data release.

Declining unemployment and the government’s program of child benefits are set to put Poland’s expansion back on track. The central bank forecasts the economy will add 3.8 percent this year and next.

“Even though one shouldn’t belittle weak March results, we’re still assuming that industrial output and retail sales will rebound in the remainder of the year, supported by economic activity in Europe and child benefits,” analysts at Bank Zachodni WBK in Warsaw said in a research note.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE