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Economy still weakening, though a bit less rapidly


2013-01-07

Latest macroeconomic figures show that economic activity in Poland is steadily decelerating, as evidenced in particular by falling output and slower growth in retail sales. Meanwhile, conditions in the labour market are deteriorating, while inflation has moderated.

GDP and its components changes in Poland (%, y-o-y), Q1 2009-Q1 2013

October’s pick-up in foreign trade a statistical effect

According to preliminary data from the Central Statistical Office (GUS), in January-October 2012 Poland’s exports of goods were worth almost €118.5bn, while imports totalled more than €125.7bn. This translates into a nominal increase of 3.7% y-o-y and a decrease of 1.3% y-o-y, respectively. As a result, the country’s foreign trade deficit amounted to nearly €7.3bn, compared with €13.1bn 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 significantly over this period, showing surpluses of €17.9bn and €16.7bn, respectively. The deficit in trade with developing countries decreased slightly to €15.3bn, whereas the deficit with the countries of Southern and Eastern Europe showed a small increase to €8.7bn.

Of Poland’s main trading partners, by far the highest increases in exports were to Russia (up by 25.8% y-o-y) and Ukraine (up by 21.4% y-o-y). Exports to Slovakia went up by 9% y-o-y, to Great Britain by 7.9%, to the Netherlands by 7.7% y-o-y, and to the Czech Republic by 3.5% y-o-y. Exports to France edged down by 0.1% y-o-y and to Germany, Poland’s main trading partner accounting for just over a quarter of the country’s total exports of goods, by 0.2% y-o-y. Exports to Sweden went down by 4.4% y-o-y and to Italy by 5.7% y-o-y.

As in previous months, the biggest increase in imports was also with Russia (up by 17.2% y-o-y), with the United States a distant second at 7.2% y-o-y, followed by South Korea at 5.5% y-o-y. Imports from China rose 2.6% y-o-y and from the Netherlands by 1.4% y-o-y. Imports from the remaining top-ten countries were lower than in January-October 2011. The smallest decrease was in imports from the Czech Republic (down by 2.8% y-o-y), followed by Germany (down by 5.6% y-o-y) and Italy (down by 6% y-o-y). Imports from France declined by 8.3% y-o-y and from Great Britain by 9.3% y-o-y.

Although it may not be immediately evident from the cumulative January-October data published by the GUS, figures from the National Bank of Poland (NBP) show very clearly that foreign trade posted a significant rebound in October: Polish exports of goods leapt by 15.5% compared with the same period of 2011, while imports climbed by 7.6% y-o-y. By way of comparison, in September both export and import growth were in negative terrain, with decreases of 0.8% y-o-y and 3.2% y-o-y, respectively. In our view, the October results are not indicative of any abrupt reversal of negative economic trends and resurgence of demand, however. Rather, they are attributable to statistical factors, such as a lower base of comparison and especially more working days than a year earlier. The recession in the eurozone continues to bear down on export orders, while imports are being hurt by a significant weakening of domestic demand. And we do not expect foreign trade conditions to improve anytime soon. Though concerns over Greece and the southern periphery nations have temporarily abated, boosting stock market sentiment, the problems afflicting the monetary bloc are far from resolved. It is true that the situation in Germany, which is the main recipient of Polish exports, is relatively good. However, under prevailing circumstances, the high growth rates in foreign trade seen in October are unlikely to be maintained in the months ahead.

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

Industrial output declines

A clear sign that demand remains weak is provided by the November figures for industrial output. Following a temporary, largely statistical uptick in October, production in Poland’s industrial sector decreased by 0.8% y-o-y in November, disappointing market expectations. (The consensus was for output to show a small increase of 0.4% y-o-y.)

Compared with the corresponding period of 2011, output was down in 12 industrial sectors and up in 22. Of the main sectors, two registered decreases in November, namely manufacturing (down by 1.1% y-o-y) and mining and quarrying (down by 0.2% y-o-y). Output in electricity, gas, steam and air conditioning supply rose 1.4% y-o-y and in water supply, waste management and remediation activities by 1.3% y-o-y.

In the case of the country’s manufacturing sub-sectors, output declines were noted e.g. in computer, electronic and optical products (down by 10.6% y-o-y), in furniture (down by 9.6% y-o-y), in other non-metallic mineral products (down by 8% y-o-y), in motor vehicles, trailers and semi-trailers (down by 7.9% y-o-y), in basic metals (down by 7.6% y-o-y) and in leather and related products (down by 6.7% y-o-y). On the other hand, output in the category of printing and reproduction of recorded media went up by 11.3% y-o-y, in wearing apparel by 8.2% y-o-y, in tobacco products by 5.7% y-o-y, in electrical equipment by 5.5% y-o-y, and in wood, cork, straw and wicker products by 5.2% y-o-y.

In the first 11 months of 2012 industrial output rose 2.1% y-o-y. Despite the slight improvement of the manufacturing PMI for Poland in December[2], in our view the near term outlook for the country’s industrial sector is not optimistic. Bearing in mind that December 2012 had fewer working days compared with 2011, we estimate that in the final month of last year industrial production took a major nosedive, dragging full-year growth down to 1.6%. We expect output figures to improve from the spring of 2013 onwards thanks to more favourable base effects. However, a significant recovery is likely to occur only in the second half of the year, as the eurozone economy starts to emerge from the crisis. We forecast that in 2013 industrial output in Poland will rise by 1.9%.

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

Tough situation in the construction sector

One of the sectors suffering particularly badly in the current economic slowdown is the construction industry. Construction activity in Poland has slumped after May 2012, following a period of rapid expansion helped by preparations for the Euro 2012 football championship. In November construction-assembly output contracted by 5.3% y-o-y. The result was slightly worse than in October, due to less favourable base effects.

Of the main construction segments, the worst figure was recorded in construction of buildings, where output slumped by 7.6% compared with a year earlier. Specialised construction activities also saw a significant drop in activity (down by 5% y-o-y), whereas in civil engineering the scale of the decline was more modest (down by 3.5% y-o-y).

In January-November construction-assembly output increased by 1.5% y-o-y. We expect output figures to further deteriorate in the months ahead, due to a combination of a high base of comparison, difficult conditions on the housing market, weak investment activity in the private and public sectors, and the drying up of EU funds, which have helped to finance many large infrastructural projects in recent years. According to our estimates, in 2012 construction-assembly output increased by about 1%. For 2013 we forecast a drop of 6%.

Rise in unemployment

The increasingly pronounced economic deceleration is starting to affect the situation on the labour market. In November average employment in the enterprise sector decreased by 0.2% to just under 5.50 million people. During the analysed period there were approximately 13,000 fewer people in work compared with October. In the 12 months to November average employment in the enterprise sector declined by 0.3%, i.e. by about 17,600.

At the same time, the number of people registered as unemployed grew by 63,300 in November, to nearly 2.06 million (i.e., 143,200 more than a year earlier). As a result, the registered unemployment rate amounted to 12.9%, up 0.4 p.p. compared with October and 0.8 p.p. higher than in the corresponding month of 2011.

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. We estimate that in December 2012 the official jobless rate swelled to 13.3%, and expect it to continue to rise through the first quarter of 2013. 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. Therefore we forecast that at the end of the year the registered unemployment rate will be 13.9%.

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

Sluggish wage growth

The weakness in the labour market is having a negative impact on wages, which have grown at a very low rate in recent months. In November the average gross monthly wage in the enterprise sector came to just under PLN 3,781 (approx. €914), up by a meagre 2.7% compared with a year earlier. This means that in real terms, wages have remained stagnant over the past 12 months.

In January-November 2012 the average wage went up by 3.6% y-o-y. In our view, under prevailing economic conditions wage growth is unlikely to accelerate in the coming months. However, real wages could see a slight improvement this year, due to the anticipated easing of inflation.

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

Flagging retail sales

With growing fears of job loss and with the real wage bill shrinking[3], Poles are increasingly cutting down on consumption, as evidenced by retail sales figures. In November retail sales grew by just 2.4% y-o-y at current prices[4], a continuation of the decelerating trend that started already in Q2 2012. The result was somewhat below market expectations, which averaged 2.7% y-o-y.

In comparison with the corresponding period of 2011, sales were up in five out of eight main branch specialisations. The highest increase was noted in sales of furniture, radio, TV and household appliances (up by 15.7% y-o-y), followed by the category of other retail sale in non-specialised stores (up by 14.4% y-o-y). Sales of pharmaceuticals, cosmetics and orthopaedic equipment went up by 8.2% y-o-y. Sales of fuels rose by 2.6% y-o-y and sales of food, beverages and tobacco products by 2.4% y-o-y. On the other hand, sales in the category of newspapers, books and other sale in specialised stores slumped by 20.9% y-o-y, sales of motor vehicles, motorcycles and parts declined by 4.8% y-o-y, while sales of textiles, clothing and footwear dipped 1.2% y-o-y.

In the first 11 months of 2012 retail sales at current prices rose by 6.6% y-o-y. We estimate that in December 2012 sales growth still hovered around zero, thanks to which the full-year figure will come in at 6.1%. However, we expect retail sales growth to move firmly into negative terrain from the onset of 2013 and to remain there until the spring, due a very high base of comparison, an anticipated further deterioration of labour market conditions, and a decline in disposable household income. According to our forecasts, in 2013 as a whole retail sales will grow by 3.1% at current prices.

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

Inflation slows down

Consumer inflation has eased markedly in recent months, due to a high comparative base, weaker demand and a stronger zloty. In November the consumer price index (CPI) slowed to 2.8% y-o-y, moving substantially towards the mid-point of the central bank’s target of 2.5% y-o-y +/- 1 p.p.

The highest price increase in the 12 months to November was noted in housing and energy (up by 4.8% y-o-y), followed by food and non-alcoholic beverages (up by 3.9% y-o-y) and alcoholic beverages and tobacco products (up by 3.6% y-o-y). Consumer prices in the category of transport, which includes car fuel, rose 3.1% y-o-y. In hotels and restaurants they went up by 2.8% y-o-y and in education by 2.7% y-o-y. Lower-than-average price growth was noted in health (up by 1.3% y-o-y), in recreation and culture (up by 0.7% y-o-y), and in communication (0.1% y-o-y). Prices in the category of clothing and footwear decreased by 4.8% y-o-y. On a month-on-month basis the CPI was 0.1% in November.

In the first 11 months of 2012 consumer prices rose by 3.8% y-o-y. We expect inflation to continue to moderate in the coming months, even despite a lower base of comparison. We estimate that in 2012 the average annualised CPI amounted to 3.7%, and our 2013 forecast is for its further slowdown to 2.2%.

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

Falling producer prices

Producer inflation has slowed at an even greater pace. In November the producer price index (PPI) amounted to -0.1% y-o-y, as compared with 1% y-o-y recorded in the preceding month.

Of Poland’s main industrial sectors, two saw declines in prices in November, namely manufacturing (down by 0.7% y-o-y) and mining quarrying (down by 3.5% y-o-y). By contrast, prices in electricity, gas, steam and air conditioning supply rose 5.7% y-o-y and in water supply, sewerage, waste management and remediation activities by 3.6% y-o-y. On a month-on-month basis the PPI amounted to -0.2%.

In January-November producer prices grew by 3.7% y-o-y. We expect the ongoing economic deceleration and a high comparative base to keep producer inflation at low levels in the months ahead. According to our estimates, in 2012 as a whole average annualised PPI inflation amounted to 3.4%. For 2013 we forecast a decline to 1.5%.

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

Paweł Sionko

Senior Economist, PMR

pawel.sionko@pmrpublications.com

[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 December the PMI index for Poland’s manufacturing sector improved from 48.2 points to 48.5 points. However, it was another consecutive month that the index remained below the 50-point barrier separating expansion from contraction.

[3] In November the wage bill in the enterprise sector contracted by 0.3% y-o-y in real terms.

[4] At constant prices, retail sales rose 0.7% y-o-y in November.



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