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Another run of poor data


Latest macroeconomic data indicate that economic activity in Poland continues to decelerate. The country’s mounting economic problems are evident from the contraction of industrial output, sharp slump in construction activity, and further slowdown of retail sales growth.

Weakening foreign trade

According to preliminary data from the Central Statistical Office (GUS), in January-August 2012 Poland’s exports of goods were worth €91.9bn, while imports totalled €98.5bn. This translates into a nominal increase of 2.5% y-o-y and a decline of 2.3% y-o-y, respectively. As a result, the country’s foreign trade deficit amounted to €6.6bn, compared with €11.1bn in the corresponding period of the previous year[1].

Poland’s trade balance with the countries of the European Union as well as with the wider category of developed countries, improved markedly over this period, showing surpluses of €13.5bn and €12.5bn, respectively. The balance with developing countries also improved, with the deficit narrowing by 5.8% y-o-y to just below €12bn. By contrast, the deficit with the countries of Southern and Eastern Europe increased by over a tenth to €7.2bn.

Of Poland’s main trading partners, by far the highest increases in exports were to Russia (up by 22% y-o-y) and Ukraine (up by 21% y-o-y). Exports to the Netherlands went up by 7.7% y-o-y, to Great Britain by 7.2% y-o-y, and to Slovakia by 6.6% y-o-y. Exports to the Czech Republic were up by 1.1% y-o-y. Exports to Germany, Poland’s main trading partner accounting for just over a quarter of the country’s total exports of goods, were fractionally lower than a year earlier, as were exports to France (down by 0.1% y-o-y in both cases). Exports to Italy and to Sweden decreased by 7.4% y-o-y.

As in previous months, the biggest increase in imports was also with Russia (up by 19.6% y-o-y), with the United States a distant second at 7.5% y-o-y, followed by imports from China (up by 1.8% y-o-y). Imports from the Netherlands were flat over a year earlier. Imports from the remaining top-ten countries were lower than in January-August 2011. The smallest decrease was in imports from Belgium (down by 2.4% y-o-y), followed by the Czech Republic (down by 4.2% y-o-y) and Germany (down by 5.7% y-o-y). Imports from Italy declined by 7.9% y-o-y, from France by 8.5% y-o-y and from Great Britain by 9.6% y-o-y.

Although foreign trade slowed in August, export growth continues to outpace import growth. With the eurozone in crisis, the flow of new export orders is steadily decelerating, while the deterioration of the domestic economy is increasingly affecting imports. We expect these tendencies to deepen in the months ahead, as suggested for instance by the latest PMI index for the manufacturing sector. Nonetheless, taking into account an increasingly favourable comparative base in the remainder of the year, we forecast that in 2012 as a whole Polish exports of goods will rise by 2.7%, and imports by 0.1%. As a result, the foreign trade deficit will amount to €12.3bn.

Foreign trade in Poland (%, y-o-y), 2004-2011 and January-August 2012

Industrial output declines

Industrial activity is slowing further, in line with falling orders. In September industrial output in Poland contracted 5.2% y-o-y, bringing a negative surprise for the market, which had anticipated a more limited contraction of 3.7% y-o-y, taking into account a smaller number of working days than a year earlier.

Compared with the corresponding period of 2011, output was down in 27 (out of 34) industrial sectors. Of the main sectors, the biggest drop was noted in manufacturing (down by 5.6% y-o-y), followed by water supply, waste management and remediation activities (down by 4.2% y-o-y), and mining-quarrying (down by 3.4% y-o-y). Output in electricity, gas, steam and air conditioning supply dipped by 0.4% y-o-y.

In the case of the country’s manufacturing sub-sectors, production of furniture declined by 18.1% y-o-y, that of computers, electronic and optical products by 15.5% y-o-y, pharmaceutical products by 15.4% y-o-y, other non-metallic mineral products by 13.8% y-o-y, while output in the cars, trailers and semi-trailers category dropped by 12.7% y-o-y. On the other hand, production of tobacco products grew by 7.5% y-o-y, chemicals and chemical products by 2% y-o-y and foodstuffs by 0.6% y-o-y.

In Q1-Q3 2012 industrial output rose by 2.5% y-o-y. Although the slump in production recorded in September was due in large part to statistical factors, seasonally-adjusted figures confirm that activity in Poland’s industrial sector is steadily weakening. While the biggest declines in output occurred in sectors strongly reliant on exports or involved in the manufacture of building materials, the weakness extended across most manufacturing sub-sectors. In October the situation was entirely different: there were more working days than a year ago, which is set to have helped industrial output figures. So it is likely that October’s industrial output growth will return to (slightly) positive territory. However, we expect conditions to deteriorate again in the subsequent months. As a result, we forecast that in 2012 as a whole industrial output will grow by less than 2%.

Industrial output in Poland (%, y-o-y), September 2011-September 2012

Steep collapse in construction

The construction sector saw an even more pronounced contraction of activity in September, with construction-assembly output plummeting by 17.8% y-o-y.

Of the main construction segments, the worst performer was construction of buildings, where output shrank by as much as 22.9% compared with a year earlier. Civil engineering and specialised construction activities also recorded substantial declines in output (down by 14.9% y-o-y and by 13.9% y-o-y, respectively).

In the first nine months of 2012 construction-assembly output increased by 1.4% y-o-y. Although the September slump is in large part explained by a higher comparative base and fewer working days than in the same period of 2011, we expect the growth rate of construction-assembly output to remain in negative territory throughout the remainder of the year, weighed down by unfavourable base effects, financial difficulties among construction companies, and the gradual drying up of EU funds, which pay for much of public investment.

Stagnant labour market

The sharp slowdown of economic activity and considerable uncertainty about the future are putting a growing pressure on jobs. Faced with a deceleration in export orders and a flagging domestic market, companies in Poland have no motivation to invest in new capacity, and some firms are implementing temporary production stoppages to deal with lower demand. Even so, the deterioration of economic conditions has yet to show up in employment figures in any significant way.

In September average monthly employment in the enterprise sector decreased by 0.1%, to just over 5.51 million people. During the analysed period there were 8,100 fewer people in work compared with August. In the 12 months to September average employment in the enterprise sector edged down by 600.

At the same time, the number of people registered as unemployed by labour offices increased by 14,300 in September, to just under 1.98 million (in comparison with the same period of 2011 this represents an increase of 117,300). As a result, the registered unemployment rate amounted to 12.4%, the same as in August and 0.6 p.p. higher than in the corresponding month of 2011.

The figures show that the situation on the labour market is more difficult than it was a year ago. Nevertheless, for the time being employers are adopting a wait-and-see approach. They see economic activity decelerating and are concerned that the downturn could escalate, and so are not creating new jobs, but they are also refraining from job cuts as far as they can. In our view, the observed strengthening of negative tendencies in the economy coupled with a seasonal decline in jobs could lead to a more significant deterioration of labour market conditions and a more pronounced decline in employment in the months ahead. Therefore we expect the official jobless rate to reach 13.2% before the end of the year. The outlook for 2013 is not optimistic, either. We are in for several quarters of weak activity, and while the economic situation should start improving from mid-2013 onwards, the anticipated recovery is unlikely to provide any significant boost to the labour market until it gathers more momentum. Its effects are therefore likely to become significant only in 2014.

Registered unemployment rate in Poland (%), September 2011-September 2012

Wage growth slows further

Maintaining employment at its current level has had its price in sluggish wage growth. The rate of wage growth has decelerated further in recent months, and in real terms has been in negative territory since July.

In September the average gross monthly wage in the enterprise sector amounted to just under PLN 3,641 (approx. €881), up by just 1.6% over a year earlier. This means than in real terms, wages contracted by 2% in the year to September.

In Q1-Q3 2012 the average wage went up by 3.7% y-o-y. Though base effects will favour higher wage growth, our view is that under prevailing economic conditions one should not expect any substantial acceleration in wages in the rest of 2012.

Average gross monthly wage in enterprise sector in Poland (%, y-o-y), September 2011-September 2012

Flagging retail sales

Mounting concerns about job loss and a shrinking wage bill[2] are showing up in retail sales, which slowed sharply in September following a slight deceleration the month before. September sales were up by just 3.1% y-o-y at current prices[3], below market expectations of 4.8% y-o-y.

In comparison with the corresponding period of 2011, sales went up in six out of eight main branch specialisations. The highest increase was noted in sales of furniture, radio, TV and household appliances (up by 16.2% y-o-y), followed by other retail sale in non-specialised stores (up by 14% y-o-y) and textiles, clothing and footwear (up by 12% y-o-y). Sales of fuels went up by 7.3% y-o-y, while sales of pharmaceuticals, cosmetics and orthopaedic equipment rose 5.6% y-o-y. Sales of food, beverages and tobacco products edged up by 0.9% y-o-y. The two categories in which sales declined were motor vehicles, motorcycles and parts (down by 7.6% y-o-y) and newspapers, books and other sale in specialised stores (down by 13.3% y-o-y).

In the first nine months of 2012 retail sales at current prices rose by 7.9% y-o-y. While the weaker sales figure for September was partly due to statistical factors (fewer trading days than a year earlier and a higher base of comparison), it should be noted that retail sales have been steadily losing traction already since the second quarter of 2012. Given unfavourable base effects, deteriorating labour market conditions, and falling disposable household incomes, Poles’ willingness to spend and retail sales figures are unlikely to improve in the months ahead. Rather, they are likely to continue to weaken at a gradual pace. And while the October figure will be helped by more trading days than in the same period of 2011, we forecast that retail sales growth will remain modest in the remainder of the year, and will move into negative ground at the beginning of 2013.

Retail sales in Poland (%, y-o-y), September 2011-September 2012

Inflation stabilises

The softening of consumer demand and deterioration in the global economy have resulted in an easing of inflationary pressures. While in September the consumer price index (CPI) remained at the high level it was the month before (3.8% y-o-y), this was a consequence of a significantly lower comparative base. The figure was marginally below market expectations, which had averaged 3.9% y-o-y.

By far the highest price increase in the 12 months to September was recorded in transport, a category that includes car fuel (up by 8% y-o-y). Above-average price growth was also noted in housing and energy (up by 5.5% y-o-y) and food and non-alcoholic beverages (up by 5.3% y-o-y). Prices in the category of beverages and tobacco products went up by 3.7% y-o-y, in health by 3.4% y-o-y, in hotels and restaurants by 2.9% y-o-y, and in education by 2.5% y-o-y. Prices in recreation and culture rose 0.9% y-o-y while communication charges inched up by 0.1% y-o-y. As in previous months, the only category to register a decline in prices in September was clothing and footwear (down by 5% y-o-y). On a month-on-month basis the CPI was 0.1%.

In Q1-Q3 2012 consumer prices rose by 4% y-o-y. Though September marked the 21st consecutive month that inflation remained above the upper end of the central bank’s target band (2.5% y-o-y +/- 1 p.p.), we expect consumer prices to start decelerating markedly in the coming months (helped not least by a very high base of comparison). We forecast that in 2012 as a whole the average annual CPI will be 3.9%, and that inflation will return to the central bank’s target in mid-2013.

Consumer price index in Poland (%, y-o-y), September 2011-September 2012

Further slowdown in producer prices

Producer prices, meanwhile, decelerated considerably in September, due to a sharply higher comparative base. The producer price index (PPI) fell to 1.8% y-o-y, strengthening its downward trend from August. The figure was broadly in line with market expectations.

Of Poland’s main industrial sectors, the steepest price increase (up by 5.8% y-o-y) was noted in electricity, gas, steam and air conditioning supply, followed by water supply, sewerage, waste management and remediation activities (up by 3.3% y-o-y). Prices in the manufacturing sector rose by 1.5% y-o-y. By contrast, the mining-quarrying sector saw a 2.1% y-o-y decline in prices in September. On a month-on-month basis the PPI amounted to 0.5%.

In January-September producer prices grew by 4.5% y-o-y. In view of the observed softening of economic activity and taking into account a high comparative base, we expect the PPI to maintain its slowing trend in the remainder of the year. According to our forecasts, in 2012 as a whole average annualised PPI inflation will be 3.6%.

Producer price index in Poland (%, y-o-y), September 2011-September 2012

Paweł Sionko

Senior Economist, PMR

[1] By way of comparison, in 2011 as a whole the trade deficit amounted to €15.9bn, i.e. approximately 4.2% of GDP.

[2] In September the wage bill in the enterprise sector contracted by 2% y-o-y in real terms.

[3] At constant prices, sales decreased by 0.4% y-o-y in September, moving into negative territory for the first time since April 2010, when the crash of the presidential plane in Smolensk and the period of national mourning that followed it kept Poles at home, sharply reducing their willingness to spend.

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