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The Warsaw Voice » Business » January 13, 2010
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Bright Prospects
January 13, 2010 By Andrzej Ratajczyk    wersja polska »
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Poland's economy is likely to grow faster this year than it did in 2009 and more rapidly than other European Union economies, according to most forecasts.

Poland is riding out the global crisis much better than other countries and is probably the only country in the EU that recorded GDP growth last year. According to Poland's statistics office, GUS, the country's GDP grew by 1.7 percent year on year in the third quarter of 2009.

Positive third-quarter figures bode well for annual growth. Moreover, everything at the moment points to Poland being perhaps the only, and certainly one of the few EU countries able to close the year with a positive-and not negative-rate of economic growth. According to the EU statistics office, Eurostat, no other EU country reported year-on-year growth in the third quarter. Greece had the lowest fall in GDP of 1.6 percent, while Estonia's GDP drop was the highest at 15.3 percent, followed by Lithuania with a decline of 14.3 percent.

Preliminary figures from Poland's economy ministry show that the country's GDP grew by 1.5 percent in the whole of 2009. This figure is higher than officially expected by the Polish government, which put 2009 GDP growth at 0.9 percent in the 2010 budget. The Organization for Economic Cooperation and Development (OECD) predicted 1.4 percent growth for the Polish economy in 2009; the European Commission forecast 1.2 percent; and both the International Monetary Fund (IMF) and the World Bank predicted 1.1 percent.

Most forecasts expect that the performance of the Polish economy in 2010 will also be outstanding, both in European and global terms. According to the latest OECD Economic Outlook report, in 2010 the rate of economic growth in Poland will rise to 2.5 percent, followed by 3.1 percent in 2011. This is a significantly better figure than the 0.9 percent predicted for the euro zone in 2010 and 1.7 percent in 2011. The report underlines that the Polish economy finds itself in a more advantageous position than other OECD economies, which have been hit by recession.

A relatively low unemployment rate forecast for the coming two years of 9.6 percent is expected to strengthen the Polish economy. The Polish labor market should remain stable, OECD economists say, when compared with the euro zone, where unemployment is projected to stand at 10.8 percent in 2011. The report also lists threats to the Polish economy, the most serious of which is a public finance deficit.

The IMF has also upgraded its forecast for Polish GDP growth. According to the IMF, Poland will record 1.1 percent growth in 2009 and 2.2 percent in 2010. The IMF had earlier predicted a 0.7-percent fall in Poland's GDP in 2009 and a 1.5-percent rise in 2010.

The HSBC bank has revised its GDP growth projection for Poland to 1 percent in 2009 and 2 percent in 2010. Meanwhile, Germany's Erste Group predicts that Poland's GDP will grow 2.6 percent in 2010, up from 1.2 percent in 2009. According to Erste Group, the main factor influencing GDP growth after 2010 will be an investment slump, which will affect production. Erste Group analysts suggest that, compared with 2005-2007, the number of investment projects in Poland is likely to fall by up to 40 percent. Less investment not only has a negative effect in the short term but could also lower production levels in the long term, Erste Group said.

The European Bank for Reconstruction and Development (EBRD) published a forecast in the second half of October which had Polish GDP growing by 1.3 percent in 2009 and 1.8 percent in 2010. Earlier, in May last year, the EBRD figures had been 0 percent and 0.8 percent respectively. In turn, the latest report from the Netherlands' ING TFI foresees a growth of the Polish economy in 2010 to a level of up to 4.0-4.5 percent year on year. Meanwhile, the chief economist at PricewaterhouseCoopers in Poland, Prof. Witold Or這wski, predicts Polish economic growth at a rate of some 2.5 percent in 2010. In the first half of the year the rate is likely to swing between 1 and 2 percent, only to increase later, Or這wski said. "I am counting on some 3 percent, maybe over 3 percent by the end of the year," he added.

Construction as a key driver of growth
According to the Gda雟k Institute for Market Economics (IBnGR), Poland's GDP grew by 1.4 percent in 2009. In 2010, economic growth is expected to average out at 2.2 percent, ranging from 1.5 percent in the first quarter to 2.5 percent in the fourth.

The construction sector is expected to retain the fastest growth in value added, between 5 and 6 percent in both 2009 and 2010. This sector will on the one hand be hampered by banks with more stringent financing rules for residential projects, but on the other will reap profits from huge infrastructure projects related to the Euro 2012 soccer championships, the IBnGR says.

The most important sector with regard to economic growth is market services and these are expected to grow at a rate of over 3 percent in 2009-2010. Moods in industry, a sector that suffered the most from the economic crisis, should improve into 2010. In 2009, industry probably reported an around 3-percent drop in value added, the IBnGR says, but predictions for 2010 have value added going up by 1 percent.

Foreign trade helped maintain economic growth in 2009, while domestic demand dropped by almost 1 percent, according to the IBnGR. The situation should improve in 2010 when the IBnGR says domestic demand is likely to grow by 1 percent.

In 2009, for the first time in six years, investment spending in the economy fell by 2.6 percent, according to the IBnGR. This negative trend should reverse in the second quarter of 2010, when there should be a slight rise in investment. Investment growth in the whole of this year is likely to measure 1 percent. According to IBnGR analysts, suppressed investment demand will therefore revive slowly. Consumption is expected to grow at a stable rate of some 2.5 percent in 2009-2010.

The relatively stable situation in the labor market will be one factor that will help maintain a positive rate of consumption growth. Poland's exports in 2009 were over 5 percent lower as a result of the recession in EU countries, the IBnGR says. Imports fell even more, by 10 percent, due to reduced purchases of investment and consumer goods abroad. In 2010, the country's export performance should improve, with exports rising by over 2 percent, the IBnGR says. The rate of import growth, however, will hover just below zero. Foreign trade will therefore continue to be an important driver of economic growth.

The Lewiatan Polish Confederation of Private Employers predicts that 2010 will be in every aspect more peaceful and better than 2009. Risks are now more easily identifiable and quantifiable, raw material prices and currency exchange rates are not changing as suddenly and unpredictably, and the whole developed world is slowly emerging from the economic recession, Lewiatan says.

According to Lewiatan, Poland's economic growth in 2010 will depend on two key factors: the situation abroad and the state of public finances. Lewiatan experts say that it is necessary to watch the biggest countries in Western Europe such as Germany, Italy, Britain and France, which are Poland's most important trade partners. The crisis came to Poland from abroad and impulses for economic revival in the shape of demand for Polish exports will come from the same direction, Lewiatan says.

A marked improvement in the results posted by Polish industry in the fourth quarter of last year, particularly in its export-oriented branches, could herald an oncoming revival, according to Lewiatan. Revived consumer demand in the major Western European countries will be the key. In 2009, consumption was artificially boosted by subsidies offered to new-car buyers in exchange for scrapping old cars. The cancellation of such programs will serve to lengthen the waiting time for improvement. On the other hand, redirecting EU consumer demand toward somewhat cheaper food, cosmetics or furniture could bring benefits to exporters and producers in the new EU countries, including Poland.

The state of public finances is also important, Lewiatan experts say. A strong fiscal stimulus in the shape of increased expenditure over several consecutive years, coupled with a reduction in corporate income tax and pension contributions, bolstered domestic consumption, including that of households, in 2009. Thanks to this and other factors Poland is the only EU country to not have experienced the economic recession, Lewiatan says.

An optimistic business sector
The Polish business sector is not frightened of the recession and believes that the economic downturn is now history, according to research on business-sector moods carried out by the Polish Chamber of Commerce (KIG) as part of the European Economic Survey 2010.

"After a difficult 2009, the business sector is counting on economic improvement this year," says KIG Secretary-General Marek K這czko. "The GUS data that points to a 1.7-percent rate of economic growth in the third quarter of 2009 confirms that the Polish business sector successfully coped with the consequences of the global crisis and that its optimistic forecasts for 2010 have a chance to be fulfilled."

Research carried out by KIG shows that almost 60 percent of Polish businesses plan to increase sales in 2010, and just 12 percent expect a slump in sales. These expectations are more optimistic in the service sector than among production firms. Mood improvement is apparent in projections for domestic sales. Over 57 percent of firms expect sales to rise in 2010.

The business sector expects that 2010 will be a significantly better year for exports, which significantly slowed as a result of problems in countries that are Poland's major trade partners. Over a third of the firms polled plan to increase export-oriented production and almost half (48.8 percent) to maintain exports at their current levels. "Business-sector predications with regard to exports lead us to believe that the 2.8-percent rate of export growth assumed in the 2010 budget law is achievable," says K這czko.

Firms do not lack optimism when planning investment. As shown by KIG's data, 44.5 percent of the firms have declared that they will increase investment in 2010 and almost 42 percent said that they will retain their current investment levels. Pessimists are in the minority since only 14 percent plan to reduce investment. "The optimism comes in large measure from projects financed with EU funds allocated to Poland for 2007-2013 as well as large infrastructure projects related to the Euro 2012 soccer championships," K這czko said.

Some 60 percent of firms polled declared that they will retain current employment levels, while 26 percent said that they plan to expand their work forces. Only 14 percent of firms plan staff reductions.

The business sector, however, evaluates its environment and operating conditions rather pessimistically. Almost 60 percent of businesses polled said that operating conditions in 2009 significantly worsened. What are the prognoses? Almost one in five firms expects conditions to worsen and 45.6 percent expect no change. Roughly one-third hopes that conditions improve.

Other research confirms the optimism in the business sector. According to the Deloitte Business Sentiment Index report, Poland is the most optimistic country in Central Europe. Among Polish managers, 74 percent expect that economic conditions will improve within the next six months, while only 51 percent of those polled had expected improvements in the previous six months. Meanwhile just 4 percent of firms expect a worsening in the economic situation; previous research showed a figure of 16 percent, the report says.

The report also shows that 85 percent of Polish firms are waiting for greater access to credit and not one says that the situation is likely to worsen. This is the best research result for all the countries polled. The previous report had shown figures of 72 percent and 23 percent respectively.

Stock market boom to continue?
A continued economic revival creates conditions for a significant improvement in profits earned by Warsaw Stock Exchange-listed companies in 2010. As a result, the good sentiment on the stock market is likely to continue, though not even the greatest optimists are expecting a repetition of the 2009 boom. The WIG20 blue-chip index gained 33 percent and the WIG broad market index rose by 47 percent last year. Food producers and developers gained the most, their sector indexes rising by over 100 percent.

WSE president Ludwik Sobolewski expects a dozen or so new listings on the main market in 2010 and many more on the NewConnect alternative market. This year could be the best with regard to the value of companies entering the WSE, Sobolewski said, especially if businesses such as energy company Tauron and insurance giant PZU go public.

ING TFI experts expect a further boom on the WSE. They predict that 2010 will be a good time for the gradual buildup of positions on the stock exchange for long-term investors. The market is likely to be better in the first half of the year than in the second, ING TFI says. The WIG index in 2010 could realistically achieve 50,000 points. Medium-sized and small firms, in addition to banks, are the most interesting market sector with regard to investment, according to ING TFI.

Analysts with the Black Rock fund say that not only banks, but also developers and fuel companies may prove to be the best investment.

Last year, many experts were saying that foreign funds were behind the WSE gains. But Sam Vecht, managing director of Black Rock, said in an interview for Poland's Puls Biznesu daily that foreign funds had not yet started to fill their portfolios with Polish shares. "The percentage of stock from Central and Eastern Europe currently held in the portfolios of Western European funds is just a quarter of what was held at the height of the market," Vecht said. "I am expecting interest to revive in the not-too-distant future. We are very active on the Warsaw bourse."

According to Vecht, banks are likely to benefit the most from an economic revival. It is also worth casting an eye on developers who are carrying out projects to a higher standard, he said; their share prices have dropped steeply but will likely rebound once business in the financial sector returns to normal. Refineries also look interesting: although actual margins are heavily suppressed, the potential for profit making in the long term is higher than could be expected with the current share prices, Vecht said.
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