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The Warsaw Voice » Business » August 29, 2013
Business & Economy
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Economy Picks Up, But Too Early for Euphoria
August 29, 2013   
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The Polish economy is gaining momentum, but it’s too early to celebrate a full-fledged revival.

Preliminary statistics released by the Central Statistical Office (GUS) for the second quarter show that Poland’s GDP grew by 0.8 percent versus 0.5 percent in the first quarter. Improving figures suggest that in the next quarters the Polish economy will accelerate further.

Many favorable signals have been coming from the manufacturing sector. Production is growing, according to studies by Polski Bank Przedsiębiorczo¶ci (PBP). Manufacturing output grew 3 percent in year-on-year terms in June and is estimated to have increased over 5 percent in July. This was coupled with a rise in domestic and foreign orders, as indicated by the PMI index, which illustrates the situation in the manufacturing sector. In July, the PMI broke a threshold mark between contraction and expansion, rising from 49.3 points in June to 51.1 points.

This is good news because a PMI above 50 points means that the market expects an economic revival. If the index is below 50 points the market is in a recession. It is impossible for this strong growth in the PMI to have resulted from temporary factors alone. There are two fundamentally important factors behind the change—expanding exports and stabilizing internal demand.

Exporters have fared better for some time than the manufacturing sector as a whole, thanks to rapid growth in exports to countries outside the European Union. In the first half of this year, goods exports increased by 6 percent to nearly 74.2 billion euros, according to preliminary data released by GUS. At the same time, at 74.7 billion, imports were 2.3 percent lower than a year earlier. Consequently, the trade deficit dropped by 6 billion euros to 500 million. Exports to the European Union went up by 1.9 percent to 55.1 billion euros. Exports to the Commonwealth of Independent States (CIS) rose by 12.7 percent to 7.2 billion euros, with a 12.8-percent increase in exports to Russia and nearly 11 percent growth in exports to Ukraine. Exports to other developing markets were almost 23 percent higher, at around 6.5 billion euros. The value of exports to China increased by 22.5 percent to reach around 770 million euros.

The latest data for the eurozone, which is Poland’s main trading partner, is a good signal for the Polish economy. According to the European Union’s statistics agency, Eurostat, the eurozone GDP grew 0.3 percent in the second quarter. Although the growth was not impressive, it marked an end to six successive quarters when the eurozone economy contracted. Importantly, there was optimistic data coming in for the two largest eurozone economies, Germany and France. The preliminary GDP figures for the second quarter came as a nice surprise, with the GDP growth rate for the largest eurozone economy rising to 0.9 percent in year-on-year terms, after a 1.6 percent drop in the first quarter. In quarter-on-quarter terms, Germany’s GDP grew 0.7 percent. France’s GDP expanded by 0.5 percent quarter on quarter, bouncing back after two successive quarters when the growth rate was negative.

Some revival has also been recorded in the European manufacturing sector. In June, production in the eurozone was 0.3 percent higher than a year earlier and 0.7 percent higher than in May. Germany’s relatively robust results came as especially welcome news. The country’s production was 2.4 percent higher in June than in May. In May, it had dropped by 0.8 percent. The latest reading of the German ZEW indicator of Economic Sentiment for the eurozone is in line with the eurozone output growth figures. In August, the ZEW went up to 42.0 points from 36.3 points a month earlier. The assessment of the current economic situation improved even more, rising to 18.3 points from 10.6 points in July.

The latest optimistic data on production and retail sales, which went up by 1.8 percent year on year, combined with the sharp increase in the PMI index and a 2.5 percent rise in wages in the first half of the year, make it possible to expect that the economic situation in Poland will improve in the second half of the year. “However, there is no reason to be euphoric,” says Krzysztof Kolany, chief analyst at Bankier.pl. “There are well-founded worries that inflation will rise. Additionally, the growth is still too slow for us to expect a reduction in unemployment.”

Analysts say the Polish economy grew at its slowest pace in the first quarter and should now accelerate gradually. However, as private investment is still subdued and the government cannot afford fiscal stimulation, it may take some time for the economy to recover, according to a report by a team led by Jerzy Hausner, former deputy prime minister and economy minister, and now member of the rate-setting Monetary Policy Council. “Now, the main problem of the Polish economy is not so much whether it will see a revival but the risk that it may remain on a path of slow growth for a longer time.”

The fact that the economy as a whole is expected to be growing does not mean that everyone will be doing better. The risk of bankruptcy is the highest for companies in the mining, automotive, retail and construction sectors. In 2014, construction will still be in a deep recession and only a series of new public projects can change this, according to the authors of the report.

Economists at PBP bank say Poland’s economic growth will reach 2 percent at the end of the year and then exceed 3 percent next year. But caution is needed, they say, because it is not known how the global situation will develop. There are many positive signals from the global economy but they are combined with many disquieting signals as well. Economic conditions are improving in developed countries, which is reflected by leading economic indicators. But the situation in large emerging markets—such as China, Brazil and Russia—is deteriorating. In Europe, there are many risks to its fragile recovery. The Western European banking system is still in poor condition and the governments of Italy and Spain are unstable.
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