Markets are downplaying PiS election risks in Poland

Significance

Despite PiS's costly spending pledges, its nationalist and populist views and its strong support for a controversial, Hungarian-style debt-relief scheme for holders of foreign currency-denominated mortgages, the prospect is causing little anxiety in financial markets. Investors are taking the view that PiS, which is leading the ruling Civic Platform (PO) party by a wide margin in opinion polls, will be forced to renege on many of its campaign promises.

Impacts

• Poland is less vulnerable to the VW scandal, auto manufacture accounting for a much larger share of Czech and Hungarian jobs and GDP.
• A hard landing for China's economy is now seen as the largest threat to financial markets, as opposed to a rise in US interest rates.
• Central Europe's economies are better placed to cope with deteriorating sentiment towards EMs.
• Downside risks to inflation from falling commodity prices and slower EM growth put the NBP under pressure to loosen monetary policy further.