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The Warsaw Voice » Business » December 21, 2012
Business & Economy
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Economic Forecast: Tough Year Ahead
December 21, 2012   
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In 2013, the Polish economy is unlikely to fall into recession, but it will grow much more slowly than in previous years.

The statistics leave no room for illusions—the Polish economy is clearly slowing down. In the first quarter of 2012 it grew by 3.5 percent in year-on-year terms, in the second quarter the growth rate was 2.4 percent, and in the third only 1.4 percent. Signals from the economy show that the slowdown at the end of 2012 was probably even deeper. Most likely GDP growth in the fourth quarter was under 1 percent.

Weaker-than-expected GDP data means that forecasts for 2013 have had to be revised. “At the moment, it seems likely that economic growth will be just above 1 percent, and periodically even lower than that,” says Ignacy Morawski, chief economist at Polski Bank Przedsiêbiorczo¶ci. According to analysts at this bank, three factors are responsible for the slowdown. First, the growth in consumption is the lowest since the early 1990s, as a result of a decline in real wages and increased savings by households. In the third quarter consumption growth was almost zero (0.1 percent year on year). Second, cuts in public investment and stagnation in housing are contributing to a deep recession in the construction sector. Third, the poor situation in the eurozone is discouraging Polish companies from investing.

And there’s no hope for improvement in the near term. Therefore forecasts by many international institutions for economic growth in Poland in 2013 do not exceed 2 percent. Poland’s economic growth is expected to slow to 2.5 percent in 2012, followed by 1.6 percent in 2013, according to the OECD Economic Outlook report by the Organization for Economic Cooperation and Development. In May, the OECD predicted 2.9 percent GDP growth for Poland in both 2012 and 2013.

Morgan Stanley, one of the largest investment banks in the world, also revised downward its economic growth forecast for Poland in November. At the beginning of the year, the bank’s economists expected that the Polish economy would grow 3.6 percent in 2013. In August, the forecast was lowered to 2.1 percent. The latest projection, in turn, is only 1.5 percent. According to Morgan Stanley, the downward revision in the forecast results from an uncertain situation in the EU’s largest economies, such as France and Germany, which may affect the condition of local markets. And this will obviously have negative consequences for Polish exporters. Morgan Stanley expects that the eurozone economy will shrink by 0.5 percent next year.

The International Monetary Fund has revised downward its growth forecast for Poland from 2.1 percent to 1.75 percent. The European Commission’s autumn forecasts are also more skeptical than a few months earlier. According to the European Commission, the Polish economy will expand by 1.8 percent in 2013. If these predictions come true, this will be one of Poland’s worst readings in the last two decades, and certainly worse than predicted by the Polish government, which forecasts 2.2 percent GDP growth in the budget.

More optimistic economic forecasts for 2013 were presented during a recent visit to Poland by Philipp Bärtschi, chief strategist and chairman of the Investment Committee of Bank Sarasin. “Despite the relatively pessimistic mood among investors, many economic indicators have stabilized, which shows that it is likely that economic growth in Poland will accelerate to 3 percent in 2013,” said Bärtschi.

Fear of recession and falling demand is increasingly catching up with Polish companies. Such conclusions can be drawn from the third round of an international survey of chief financial officers (CFOs) conducted by the consulting firm Deloitte among executives in large companies in Poland and other countries in Central Europe. Poland’s CFOs are becoming less optimistic about the economic situation. Although 95 percent of those surveyed expect GDP growth in 2013, half of them expect stagnation (growth of 0-1.5 percent). Just six months earlier, three quarters of respondents predicted growth of up to 3 percent.

As half a year earlier, 90 percent of the CFOs from Poland consider the economic situation uncertain, but this time 50 percent rated the degree of this uncertainty as high or even very high. At the same time, the percentage of those who expect the financial performance of their companies to deteriorate rose by almost 20 percentage points to 50 percent.

“Six months ago we spoke of optimism among company CFOs. But now it can be seen that the crisis in eurozone countries, which are the most important export partners for countries in our region, as well as the specter of an economic downturn, have changed the way respondents look at things; they have become much more cautious in assessing the macroeconomic situation,” said Krzysztof Pniewski, partner at Deloitte Business Consulting.

The latest survey shows a clear change in areas that raise the greatest concern among CFOs. In the first half of this year, one in five respondents said they were worried about an exchange rate risk and indicated this response as a key risk factor. Today, this is a problem for only 5 percent of the CFOs. Instead recession and a drop in demand are now viewed as the biggest threat. They are feared by 46 percent of respondents. Among troubling signs respondents also mentioned increased operating costs (11 percent), price pressure (10 percent), and liquidity problems (9 percent).

The outlook for the Warsaw Stock Exchange is more optimistic. According to Adam Jenkins, a director at Pioneer Pekao Investment Management SA, the emerging upward trend in the Warsaw Stock Exchange’s WIG index may consolidate in 2013—provided that a number of negative factors, including the lack of a solution to the fiscal cliff in the U.S. and a dismantling of Poland’s national Open Pension Fund system, can be avoided. Another condition is that key market sentiment indicators in the U.S. and European economies improve.

Particularly important for the Polish economy is the IFO business climate indicator in Germany, which is the most correlated to the WIG index. “We believe that 2013 will be at least as good as 2012, and perhaps even better,” said Jenkins.
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