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BIEC: economic climate dips in July


The Leading Indicator (WWK), which provides information on future trends in the economy, shed one point in July, the Bureau for Investments and Economic Cycles (BIEC) reported. The uptick in the index recorded in June thus proved to be a temporary reversal, caused mainly by higher activity in sectors with exposure to Euro 2012, and the WWK is now back to the mild downward trend that it has followed for more than a year, reflecting deteriorating external conditions, particularly in the eurozone, the BIEC commented.

Of the eight components of the WWK, three improved in July, three remained unchanged and two deteriorated compared with June. The factor that made the biggest contribution to the WWK’s decline in July was a deceleration in household lending, particularly mortgage lending. This is only partly explained by a temporary appreciation of the zloty, and primarily reflects a combination of tighter credit standards and a growing sense of uncertainty. Labour productivity also deteriorated in July. According to the Bureau, this means that companies will have to hold down wages and cut jobs in the coming months or risk losing competitiveness.

Two important measures of manufacturing activity, i.e. new orders and inventories, remained unchanged in July. Incoming export orders remained on a downward trend, particularly for durable consumer goods, such as cars, household appliances or furniture, but also for capital goods. In the months ahead companies will probably start cutting inventories to reduce costs, the BIEC predicts.

At the same time, managers’ assessments of the domestic economic situation and of the financial health of their companies improved in July, but very slightly, not nearly enough to affect a long-term downward trajectory.

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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