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BIEC: economic climate darkens in April


2012-04-30



The Leading Indicator (WWK), which provides information on future trends in the economy, shed more than two points in April, thus giving back its gains from a month earlier, the Bureau for Investments and Economic Cycles (BIEC) reported. According to the Bureau, the result suggests that the cooling trend in the economy has strengthened.

Of the eight component indicators of the WWK, five deteriorated, two remained unchanged while one improved compared with March. The biggest contributor to the Index’s decline was a marked slowdown in manufacturing orders, especially domestic orders, reflecting tougher market conditions in Poland amid high inflation and stagnant labour market. This also explains flat growth in mortgage loans, which is unusual for this time of year. Furthermore, labour productivity in the manufacturing sector fell for the third consecutive month, which together with weaker orders led to a deterioration in corporate finances, hurting confidence in the business sector.

The only component that showed improvement compared with the previous month were inventories of finished goods, which decreased in April, the BIEC said. The Bureau notes, however, that while a decline in inventories is usually a positive sign as it typically follows a rise in demand, the observed weakness in new orders suggests a different interpretation, namely that companies are cutting their inventories in anticipation of a slowdown of economic activity. Further data on the level of orders and output in the coming months should help explain the effect, the Bureau concludes.

The WWK is a prognostic instrument. It is a measure of the current state of economic activity and provides advanced information on upturns and downturns in economic activity in relation to GDP as well as data on production, retail sales, wages and household incomes. The average prognostic timeframe of the WWK index in relation to the actual state of economic affairs ranges from 3 to 12 months, depending on the phase of the economic cycle.



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