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Economic conditions deteriorate in Q4


2012-11-30



The IRG SGH business barometer declined both on a quarterly and yearly basis in the fourth quarter of 2012, reflecting a combination of negative seasonal impacts and persistent weakness of cyclical conditions. There are strong indications that the economy will remain soft in the next quarter as well.

The synthetic assessment of the economy was prepared with the use of the barometer published by the Research Institute for Economic Development of the Warsaw School of Economics (IRG SGH). This barometer consists of business indicators for seven areas covered by the survey questionnaire: manufacturing, construction, trade, households, agriculture, the banking sector and transportation. The business survey in transportation was carried out by the Motor Transport Institute.

Seasonality causes barometer to fall versus Q3

At the beginning of the fourth quarter of 2012 the IRG SGH business barometer stood at -21 points, which represents a decline of 5.5 points compared with the previous quarter. A quarter-on-quarter decline is a normal occurrence at this time of year, due to negative seasonal impacts.

Of the seven economic areas covered by the IRG SGH barometer, only the banking sector did not experience a deterioration of conditions in relation to Q3. It was also the only sector whose business indicator remained in positive territory in Q4. The remaining six sectors all showed negative values. Furthermore, in manufacturing, construction, trade, and households the business indicators reached their lowest levels since the survey began in 1999. The composite barometer, too, has never been lower in Q4. The positive reading of the banking indicator is therefore an isolated case. Moreover, banks offered a pessimistic outlook for the next quarter. As in Q3, the household indicator showed the lowest value of all sectors (-53.4 pts), followed by construction (-36 pts), transport (-32 pts), agriculture (-6 pts) and manufacturing (-5.8 pts). It is only the second time that the business indicator in the manufacturing sector has fallen into negative ground in Q4 (the first time was in 2008).

The biggest contributors to the quarterly fall of the IRG SGH barometer were households, construction, and trade. Having strengthened for two consecutive quarters, household sentiment declined in Q4, as reflected in a 10.6-point drop of the household indicator compared with Q3. There was a particular deterioration in household views about unemployment, their own financial situation, and the macroeconomic situation of the country. Household views about savings, the fourth component, also worsened, but only slightly. The slump in household sentiment contributed 2.4 points to the decline in IRG SGH barometer’s value in Q4.

Conditions in the construction industry have been deteriorating steadily throughout 2012. The 17-point decline in its business indicator recorded in Q4 is smaller than the one observed a year earlier. It contributed 1.9 points to the drop in the IRG SGH barometer. The current trend values are slightly above those seen in 2001, i.e. the worst year for the construction industry, but lower than in 2009, i.e. at the height of the crisis. They are in between these two low points. Companies in the construction sector are pessimistic about the future, and the coming quarter is unlikely to bring any improvement, since Q1 is a period of seasonal weakness for this industry. Construction firms are reporting declines in output (though on a smaller scale than a year ago), lower orders, both from domestic and export markets, decreasing employment, and falling prices of construction services. The financial situation of construction firms is deteriorating. And they are downbeat about conditions in their sector and in the Polish economy.

In the trade sector the business indicator shed almost 13 points in Q4, contributing 1.4 points to the IRG SGH barometer’s fall versus the previous quarter. It was the biggest quarterly decline in a long time. However, trade companies are more optimistic about the future than construction firms as they head into the Christmas shopping season, their busiest period.

Another contributor to the barometer’s decline in Q4 was a slight deterioration in the manufacturing sector. Like construction firms, manufacturers are glum about the near future. Their pessimism is compounded by falling orders, both domestic and foreign, and deteriorating financial situation. At the same time, however, manufacturers say barriers to business activity have eased, particularly the demand barrier, but also liquidity issues.

The impact of the decreases in the agriculture and transport indicators was insignificant.

IRG SGH Barometer, Q1 1999-Q4 2012

Deep annual decline continues

In comparison with the fourth quarter of 2011, the IRG SGH barometer shed 11 points in Q4, marking its seventh annual decline in a row. Its scale was somewhat smaller than in Q3, though.

All the sectors covered by the survey showed year-on-year declines in their business indicators in Q4. The biggest contributors to the IRG SGH barometer’s annual fall during this period were manufacturing, transport, construction, and households. The indicator of business conditions in the manufacturing sector slumped by 13.4 points in Q4 as compared with a year earlier, contributing 3 points to the barometer’s decline. Household sentiment dropped by 9.2 points, contributing 2 points. The impact of the declines in the transport and construction sectors was similar. The remaining sectors recorded smaller decreases that had less of an effect on the barometer.

IRG SGH Barometer, January 2008-October 2012

Little optimism for Q1, any improvement possible later in the year

The results of the Q4 2012 survey are in line with seasonal patterns. At the same time, the negative influence of cyclical factors has slightly eased. The pessimistic mood prevailing among businesses and households means there is no basis to expect an improvement in conditions in the first three months of 2013, but a recovery in the next quarters is possible. The situation is difficult, however, and with persistent tensions in the eurozone, it is hard to be optimistic about the near future.

Prof. Elżbieta Adamowicz

IRG SGH

elzbieta.adamowicz@sgh.waw.pl

Joanna Klimkowska, Ph.D.

IRG SGH

joanna.klimkowska@sgh.waw.pl



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