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The Warsaw Voice » Other » September 2, 2009
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Crisis Less Severe Than Feared
September 2, 2009 By Andrzej Ratajczyk   
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Poland is coping with the global economic crisis much better than other countries and is one of the few European economies which are expected to grow this year.

In the first quarter of the year, Poland was among the fastest growing economies in the European Union. According to data by the country's Central Statistical Office (GUS), Poland's seasonally unadjusted GDP (average annual constant prices from the previous year) grew by 0.8 percent year-on-year in the first quarter. The EU's Eurostat statistics office reports that Poland's seasonally adjusted GDP grew by 1.9 percent year-on-year in the first quarter of 2009. In the same period, the EU as a whole reported a decrease of 4.7 percent, while the euro zone saw a drop of 4.9 percent.

Eurostat data shows that year-on-year growth was only reported by Poland, Cyprus (1.5 percent), and Greece (0.3 percent). The greatest decline in GDP occurred in Latvia (-18.6 percent), Estonia (-15.1 percent), and Lithuania (-11.6 percent). Among the "old" EU countries, the biggest drop was in Ireland, by 8.4 percent. To compare, in the same period, the United States' GDP decreased by 2.5 percent and that of Japan fell by 8.4 percent.

Unofficial data show that Poland's GDP grew in the second quarter as well. This is good news, analysts say, because many experts predicted a recession for this period. Evidently, these pessimistic forecasts have not come true. Output in manufacturing was higher than predicted in the past few months. In June, industrial production grew by 6.6 percent compared with May, and fell by only 4.3 percent from June 2008, less than expected. In the whole of the second quarter, industrial production decreased by an average of 7.2 percent per month compared with the same period of last year. In the previous quarter, this decrease was 10.6 percent on average.

Economy Ministry forecasts suggest that manufacturing will decrease by no more than 3 percent in the third quarter. In the final quarter of the year, experts do not rule out a slight increase in sales for the manufacturing sector. Retail sales also enjoy an optimistic outlook; in June, they grew by 0.9 percent, more than expected. In the first quarter of 2009, retail sales dropped by 0.4 percent.

Encouraging macroeconomic indicators are accompanied by improved trends on the capital and currency markets. In the first seven months of this year, the Warsaw Stock Exchange's main index, the WIG, grew by 30 percent. The Polish currency has appreciated significantly as well. In early August, the euro cost zl.4 and the U.S. dollar zl.2.90. To compare, in March, the euro cost almost zl.5 and the dollar almost zl.4.

Forecasts revised upward
Good macroeconomic results and improvements on the stock exchange have increased trust in Poland, as shown by an upward revision of economic forecasts. In early August, analysts from JP Morgan bank, who were among the first to drastically revise their forecasts concerning Poland last year in anticipation of a recession, have upgraded their 2009 GDP growth forecast for Poland to 0 percent year-on-year, from minus 1 percent. JP Morgan has also revised upward its forecast for Poland's 2010 GDP growth to 2.5 percent, from 1.8 percent. According to JP Morgan, the Polish economy, which grew 0.8 percent year-on-year in the first quarter, continued to grow in the second quarter as well.

JP Morgan's analysts say they changed their forecast in the wake of an improved situation in the euro zone and better data from the Polish economy for the second quarter of this year (including a growing export surplus, with exports benefiting from an earlier weakening of the zloty). They predict that the euro zone's GDP in the period from the third quarter of 2009 to the first quarter of 2010 will grow by 2.5-3 percent on average. JP Morgan's new forecast for the euro zone is now 2.1 percent year-on-year in 2010, compared with 1.7 percent previously.

The International Monetary Fund is also considering revising its forecasts for Poland's economic growth. "Poland is looking very good, not only compared to Europe but to the whole world plunged in crisis," says Katarzyna Zajdel-Kurowska, former deputy finance minister and Poland's current representative at the IMF. "Taking the data for the second quarter, the IMF's economists do not rule out an upward revision of their forecasts. They say the forecasts are too pessimistic particularly for this year."

Under the IMF's latest forecast, Poland's GDP is expected to shrink by 0.7 percent this year and grow by 1.5 percent next year. Zajdel-Kurowska says the good perception of Poland's economy has not even been affected by the government's recent withdrawal from a plan to adopt the euro in 2012 or by amendments to the state budget.

Local economists are even more optimistic about Poland's economic performance. According to a National Bank of Poland inflation report published in late June, Poland's economic growth this year will be 0.4 percent. In the following years, though, the economy is expected to pick up speed, growing by 1.4 percent next year and 3.4 percent in 2011.

According to deputy finance minister Ludwik Kotecki, Poland is not in danger of a "technical recession," or a situation in which GDP would shrink for two consecutive quarters. Kotecki says the GDP will grow less 1 percent in individual quarters of this year, while the country's overall 2009 GDP growth will stand at 0.2 percent.

Economists from the Gdańsk Institute for Market Economics (IBnGR) predict that Poland's economy will grow 0.7 percent in 2009, followed by 1.8 percent in 2010. The institute's experts say that market services and construction will be the driving forces behind the economy in the coming year. The IBnGR forecasts that in 2009 the economy will grow the slowest in the second quarter, at 0.2 percent. The predicted growth rate for the third quarter is 0.5 percent, followed by 1.1 percent in the fourth quarter. The slowdown in 2009, says the IBnGR, will be primarily due to a 3.5-percent drop in value added in industry. "Construction will be in a much better situation, reporting 2.8-percent growth in value added this year," the IBnGR said. "The relatively good condition of the sector will be due to factors such as many large infrastructure projects financed from European funds."

The market services sector, which accounts for over a half of GDP, will cope the best with the crisis, according to IBnGR experts. Value added is expected to grow by 3.3 percent in the sector. In 2010, all three sectors will report positive growth figures. "Construction will be in the best situation, with the crisis alleviated by public investments," the IBnGR says. "The condition of industry will be the effect of an improved market situation in Poland's main trading partners, which will boost foreign demand."

At the same time, the IBnGR's experts predict a substantial decrease in the rate at which domestic demand is growing-to 1.5 percent, due to factors such as decreasing consumption and lower spending on capital goods. The institute expects unemployment to rise to about 12.8 percent by the end of 2009, followed by a gradual improvement on the labor market in 2010. Employment is expected to grow by 0.6 percent, and unemployment is expected to fall to 11.2 percent.

The IBnGR says that slower economic growth and reduced purchasing power of the population will mean lower inflation, at 3.2 percent in average annual terms in 2009, and at 2.7 percent at the end of December. Economists from the NBP, meanwhile, say inflation will decrease consistently over the next three years, reaching 3.2 percent this year and dropping to 2 percent in 2011. Inflation will be kept under control by slow growth in food prices and decreasing consumption. Wage growth is also expected to slow down; last year gross wages grew by 9.4 percent; this year they will grow another 4.5 percent, but in 2010 wage growth is expected to be lower than inflation, at 1.2 percent.

The NBP's report on Poland's economic performance in the second quarter of 2009 and forecasts for the third quarter, published in July, suggest that a revival is around the corner. The Polish economy is doing well, with growing demand, employment and wages. Capital-goods spending has grown, access to loans has improved despite difficulties, and price decreases have slowed down, Poland's central bank says. The situation of exporters has improved (though many companies continue to report decreasing sales abroad), and the same goes for companies selling their products on the domestic market.

The NBP's analysts highlight the fact that, for the first time in five quarters, companies have a more optimistic view of their own condition. They also expect improved business trends in the third quarter of 2009. "The great majority of respondents expect to be profitable," reads the NBP report. Companies' expectations of increased demand and larger orders have led to better forecasts of production growth and reduced inventories. On the other hand, the central bank points to continuing difficulties finding buyers.

The report suggests that the percentage of companies that want to increase employment has grown, and the percentage of companies planning layoffs has dropped. Overall, companies expecting layoffs are in the majority. Companies planning to hire staff are mainly from the service sector, including real estate services, hotels and restaurants. "Wage forecasts have also improved slightly, but mainly thanks to the much lower number of planned wage reductions than in the previous quarter," the report reads.

According to the NBP, entrepreneurs are showing little interest in new investments because they are still afraid of fluctuations in the economy. On the other hand, compared with the previous crisis of 2001-2002, companies give better evaluations of their liquidity and ability to repay debts, including loans. However, they are taking longer to repay what they owe. The NBP notes that the second quarter of 2009 saw an increase in the percentage of companies applying for loans, while banks rejected fewer applications.

Investment appeal on the rise
Poland is counted among the small group of countries around the world whose economies are expected to grow. This makes it a more attractive location to foreign investors. According to the World Investment Prospects Survey 2009-2011 published by the United Nations Conference on Trade and Development (UNCTAD) in July, Poland is among the most attractive destinations for foreign investment. Poland is the only Central and Eastern European nation among the top 15 countries assessed in terms of factors that foster the development of foreign direct investment. In Western Europe, the highest marks went to Germany, France and Britain.

The overall evaluation of a country's investment appeal was based on 13 criteria. Poland received excellent marks for some of these criteria, and scored an overall result well over the global average. Respondents gave the highest marks to the size and growth of the Polish market. They also put value on Poland's system of investment incentives and access to foreign markets. On the ranking list of the most attractive places for investment, among the 30 countries mentioned the most often, Poland and the Czech Republic were the only new EU members. Poland took a high 11th place on the list.

Foreign investors already present on the Polish market agree that Poland is an attractive investment destination. A study by the Polish-German Chamber of Industry and Commerce shows that 82 percent of the foreign companies are happy to have chosen Poland. Only 8 percent are dissatisfied. Though foreign investors are aware that the crisis has not bypassed Poland, they are happy to have chosen Poland, instead of Latvia or Ukraine for example, where the economic situation is disastrous. This is why, for the first time, foreign companies active in Poland have picked Poland as the most attractive investment destination in the world. Investors value Poland's membership in the European Union, its qualified and committed work force and strong domestic demand. Investors are chiefly attracted to Poland by its stable economy. Though the economy has slowed down recently, no recession is expected, unlike in other countries in the region.
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