The Warsaw Voice | 26 listopad 2008
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The global financial crisis has hit the Polish stock market and the zloty, but has not yet dampened public confidence. Consumers continue to splash out on expensive cars, radio and TV equipment and foreign holidays.
So far the Polish economy has been coping quite well with the global crisis. Poland’s GDP grew by 6.1 percent in the first quarter and 5.8 percent in the second quarter, and is estimated to have risen by 4.8-5.0 percent in the third quarter. The figures show that the Polish economy is expanding faster than those of most EU countries. Favorable data are also coming from the industrial sector. According to the Central Statistical Office (GUS), industrial sales in September rose by 7 percent year on year and jumped by 17.4 percent over August. There is no indication of any problems in the real economy for the time being. The financial sector is more dependent on external conditions than the wider economy. The volatility on world trading floors has affected the Warsaw Stock Exchange (WSE). As financial markets are interconnected globally, stock exchanges work like communicating vessels. Drops in New York automatically dampen sentiment on European markets, including the Warsaw floor. Many Polish investors have already suffered from this correlation, with portfolio losses in double-digit figures this year.
The problem is not only the falls in the WSE indices, but also the fact that the stock market has lost its attraction as a source of capital for companies planning expansion. Owing to investors’ nervousness and risk aversion, the number of IPOs planned by the Treasury to privatize stateowned companies and by the private sector is expected to decline considerably in coming months.
The global crisis has had the strongest effect on the Polish banking sector, which is struggling with liquidity problems. Banks have imposed stricter lending criteria, so businesses and private individuals find it more difficult to get a loan.
Polish developers have seen a sharp decrease in demand. Home sales in Poland’s six largest cities plunged 20 percent in the first three quarters compared with last year, according to the Warsawbased housing consultancy REAS, and analysts say this is only the beginning. Development companies are withdrawing from some planned housing projects because demand for new homes is now half that of a few months ago. Obtaining home loans is increasingly difficult and interest rates are higher. Road building companies are also unable to get funding for their projects. Exporters may be the first group of Polish producers to be hit by the global economic slowdown. A drop in foreign orders means cuts in production and jobs. Large companies listed on the WSE have already announced layoffs that will affect over 5,500 workers. Experts say thousands of Polish businesses will soon make similar decisions. Recent GUS statistics confirm a rise in layoffs. In September, 236 employers announced they would downsize by 15,600 people. In September of 2007, 133 employers wanted to cut a total of 5,800 jobs.
Analysts believe Polish businesses will make the largest job cuts next year. The hardest hit will be exporters, especially those operating in the automotive, metallurgical and furniture sectors, but also food producers, mainly meat plants and dairies. Redundancies are also expected in the construction sector.
Although economists are convinced that the good times for Polish exports are over for the time being, export statistics are still strong. According to GUS, in the nine months to September, Polish companies exported 87.8 billion euros’ worth of goods, up by 17.7 percent on the same period last year. September was an exceptionally good month for Polish exports, with the central bank’s data showing a 22.5-percent increase in the value of exports.
But the export market is expected to weaken in coming months. The financial crisis only started to spread in September, and it takes several months for an economic slowdown to affect foreign trade statistics. Official data released in November showed that the German economy is already in recession. Germany is Poland’s largest trade partner, accounting for one fourth of total Polish exports and 23 percent of Polish imports. Other old EU members are also either in recession or on the brink of it.
Record retail sales
The economic slowdown, falling stock prices and looming unemployment have not scared off Polish consumers. Quite the contrary: it seems that the more Poles hear about the crisis, the more they are rushing to shops.
According to GUS, in September retail sales increased in Poland by 1.8 percent month on month and 11.6 percent year on year. Meanwhile, the EU’s statistical office Eurostat reports that in September retail sales dropped by 0.4 percent year on year in the EU as a whole and by 1.6 percent in the euro zone. The month-onmonth decrease was 0.1 percent and 0.2 percent respectively. Retail sales increased in nine countries and fell in nine countries.
Apart from Poland, the highest growth was recorded in Romania and Slovakia, by 15.0 percent and 4.5 percent respectively. Latvia, Estonia and Spain recorded the largest drops in retail sales of 13.4 percent, 9.9 percent and 7.8 percent respectively. In September, Poles were especially eager to buy radio and TV equipment, household appliances and furniture. Sales of these commodities rose by almost 30 percent. Retail chains selling radio and TV equipment say they have not seen any crisis yet. Plasma television sets, LCDs, laptops, consoles and computer games have been selling well.
Car showrooms are having record sales as well. Nearly 30,000 new cars were sold on the Polish market in October, up by 13 percent compared with October last year. Meanwhile, European and global car sales are falling sharply. In some countries, drops are in double-digit figures. Spain, a market comparable with Poland in many respects, saw car sales decline by over 22 percent. In Ireland, the decrease was close to 20 percent. Italy and Britain saw a drop of 10 percent each. In the nine months to September, car sales in the EU dropped by over 4 percent and the decrease may reach 7 percent by the end of the year. Against this backdrop, the increase recorded in Poland is impressive.
Poland is now Europe’s fifth-largest car market, behind Germany, Britain, Italy and France. In October, Poland moved ahead of Spain, where the market is in crisis; in that country, the number of new and used passenger cars rose by just over 1 million in the 10 months to October, one fifth less than in the same period last year. In Poland, the number of new and used cars sold totaled slightly more than 1.2 million,
boosted by record imports of second-hand cars from the West. By the end of October, Poles had imported 967,800 used cars, almost one fifth more than in the same period last year, and bought over 250,000 new cars. Neither has the global crisis discouraged Poles from taking holidays abroad. In October, many travel agencies no longer had any attractive holiday offers for December to such destinations as Egypt, Tunisia, Morocco and the Canary Islands, despite the steep rise in prices due to the weakening of the zloty.
Time to save?
One of the driving forces behind consumer demand in the past 12 months was the fast growth in wages, and there are no signs the trend is about to change. GUS reported the average wage in the corporate sector rose in October by 2.2 percent month on month and 9.8 percent year on year. But most economists predict problems will start to appear in several months, when companies are likely to start cutting jobs. By early 2009 at the latest, the shopping spree will probably be over and Poles will have to start saving and reduce spending.
The outlook of Polish consumers has already slightly deteriorated, as indicated by the consumer confidence indices prepared by GUS. In October, the current consumer confidence index dropped by 6.5 points from September to -13.1 points. The forward-looking index dropped by 7.6 points to -18.0 points. Both indices fell to their levels of more than year ago. “This means that consumers’ assessment of the current and expected social and economic situation in Poland and the condition of their households worsened considerably in the month observed,” GUS reported.
More optimistic is research on the condition of households by the Economic Development Institute of the Warsaw School of Economics. The Institute’s Consumer Finance Market Barometer for the fourth quarter fell from -26.9 points to -27.8 points. In view of the drastic global downturn, the fall in the Barometer’s reading by 0.9 points is a relatively optimistic signal. Although it decreased for a second consecutive quarter, it had been in a constant upward trend from mid-2002 to the fourth quarter of 2008, when it leveled off. The outlook for the consumer finance market is not negative, but it is difficult to make definitive projections at the moment.
Researchers believe that the slowdown in mortgage loans may be offset, at least partly, by the fast growth in consumer loans. Their research shows that the turmoil on global financial markets has had the strongest impact on households’ outlook on Poland’s general economic situation— especially expectations for the next 12 months—and on future job prospects. Households’ outlook on their potential to save and spend deteriorated to a much lesser extent, or did not deteriorate at all in some cases. This shows that Poles’ reaction to the global turbulence has been quite balanced, with no signs of panic.
The crisis will not leave the Polish economy unscathed, but its consequences will not be as serious as for the United States or the old EU countries. Economists now expect that the Polish economy will grow by only 2.5-4 percent next year, compared with 6.7 percent in 2007 and over 5 percent this year.
From Poland’s point of view, a slowdown like that may seem dramatic, but many European countries would be happy with such projections. The Morgan Stanley bank predicts the Polish economy will grow by a mere 2.5 percent next year. Yet growth in the Czech Republic and Romania, whose economies were expanding until recently at rates of 7-8 percent, will be smaller, at 2.2 and 2.3 percent respectively. The situation in Hungary and Ukraine will be much worse. According to Morgan Stanley, the two economies will shrink by 1.5 percent and 3.5 percent respectively.
Poland stands out against other countries not only in terms of economic growth. In their November report on Poland, Moody’s analysts praised the country for the strength of its institutions and public finances, and its immunity to political, economic and financial risks. Analysts believe the Polish economy will be affected by a slowdown in exports and more difficult access to loans. But the negative consequences should be eased because Poland will experience a lower level of economic imbalance, in the form of a lower current account deficit for instance, and stronger reliance on domestic demand.
Ratings agencies have already lowered their credit ratings for the Baltic states and Hungary, which are in serious trouble, as well as Romania and Bulgaria, whose economies are becoming overheated. But Moody’s is not going to lower its credit rating for Poland as yet. Moody’s believes that Poland will come out of the global crisis stronger than other countries so its rating may be even raised. “Poland’s rating is based on the strength of its economy and its institutions,” say Moody’s analysts. “Even if per-capita GDP is lower in Poland than in other Central European countries, its economy is bigger, stable and well diversified.”
Andrzej Ratajczyk
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