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Slowdown begins to take hold

3rd September 2012
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A series of negative data, including Q2 GDP growth well below expectations, signals bleak prospects for Poland's economy

The Polish economy has started showing signs of a sharp slowdown, with most economic indicators offering plenty of reason for worry. Perhaps the most troubling sign came with the release of second-quarter economic growth figures on August 30, which showed Polish gross domestic product grew at an annualized rate of only 2.4 percent between April and June this year.

The number was well below the market consensus forecast of 2.9 percent, and represented the worst reading since GDP grew by just 1.6 percent back in Q3 of 2009. Poland’s economy grew 4.3 percent in 2011 before slowing to 3.5 percent y/y in Q1 2012.
Domestic demand, fixed investments and individual consumption, also released on August 30, all confirmed a slowdown that looks set to bite hard.

Citi Handlowy chief economist Piotr Kalisz said he expected economic growth of below 2 percent in the last quarter of the year, and saw full-year growth coming in at 2.6 percent.
Economists at BRE Bank were more pessimistic, forecasting GDP growth below 1.5 percent in Q4, and just 2 percent for the whole year.

The bleak Q2 data confirmed that surprisingly high figures for retail sales and manufacturing output in July were not representative of a trend toward higher economic growth.

“In July the higher number of working days was important. It was probably the best month in Q3. August data will confirm a slowdown, and September will be worse,” said Bank Zachodni WBK chief economist Maciej Reluga.

Similarly, the positive performance of the Warsaw Stock Exchange since June is not indicative of an upcoming recovery, analysts said.

“The WSE is not a local story. The markets have switched to what is happening in Europe. It doesn’t reflect the strength of the Polish economy,” said BRE Bank chief economist Ernest Pytlarczyk.

“There are no real growth engines and we will not escape a slowdown,” he added. As wage increases stay below the rate of consumer price inflation, the złoty picks up and German exports slow down, the engines that sustained Polish growth in 2010 and 2011 are lacking this time around. Also, unlike in 2009, there is no room for [the government to stimulate the market], said Mr Pytlarczyk.

Greece leaving the euro zone – a scenario which seems to grow increasingly likely – would also have a hugely negative effect on the Polish economy, economists said.

From Warsaw Business Journal by Alice Trudelle

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