Warsaw Business Journal's Made in Poland 2013 – our third annual edition of this export-focused publication – officially launches April 10. We've been hard at work putting the finishing touches on it, and we hope you'll like the result.

As always, we'll have analysis of Poland's most important export sectors, plus commentary from partners, including the Polish Agency for Enterprise Development and the National Centre for Research and Development.

We'll also have a macroeconomic overview – this year, writing it up was my responsibility. Below, find my report. Enjoy! 

The macroeconomic data coming out of Poland continues to be ugly. Could exports save the day?

Poland’s economy is expected to grow by about 2 percent in 2013 – perhaps somewhat less, depending on which economists you prefer to believe. That’s disappointing growth, considering the strong figures the country had seen in the past: after the difficult year of 2009, when Poland was the only EU economy not to go into recession, with gross domestic product growing 1.9 percent, the economy rose by 3.6 percent in 2010 and by 4.3 percent in 2011. Last year was tough, as the economy grew by just 2 percent.

So could Poland’s economy in 2013 underperform its growth of the global economic crisis year of 2009? It looks increasingly likely. While first-quarter GDP figures had not been revealed by the time Made in Poland went to press, most economists had expected growth to come in at less than one percent – the lowest quarterly figure since the first quarter of 2009. The economy was expected to pick up in the second half of the year, if the euro zone manages to extract itself from the ongoing sovereign debt crisis.

Nevertheless, ratings agency Moody’s expects Poland’s GDP to grow 1.9 percent in 2013, HSBC expects it to grow by 1.6 percent and the Gdańsk Institute for Market Economics (IBnGR) expects 1.4 percent growth this year. On the lowest end, the European Commission expects it to grow by a mere 1.2 percent. As of press time, Poland’s finance ministry was holding to its prediction of 2.2 percent growth.

What gives?

All this begs the question as to why the Polish economy has been slowing, after seeing such strong numbers throughout the crisis. One answer is fatigue – Poles and Polish businesses only had so much savings to burn through as the global economy sank. They have now come to the end of that and with economies in Europe still growing only moderately if at all, the avenues for growth are few and far between.

Consumer spending figures bear this out. During the first years of the Great Recession, Polish consumers continued to spend as if there were no economic crisis. Up until March 2012, retail sales regularly grew at rates higher than 10 percent per month. But April last year saw a deep slowdown – retail sales grew only by 5.5 percent year-on-year and never returned to anything higher than 7.7 percent. Finally, in December 2012, retail sales declined for the first time in years, by 2.5 percent, as Polish consumers began to really feel the squeeze, and spent less than usual on holiday gifts and meals.

Retail sales grew again in January, at a stronger rate than expected (2.3 percent), but screeched to a halt in February, falling by 0.8 percent year-on-year.

Inflation, interest rates drop

As Poles stopped spending, businesses slowed, price risen. Inflation has dropped like a rock since June of last year, when it hit from 4.3 percent, to 1.3 percent in February – below the central bank’s target of 1.5 percent to 3.5 percent. Core inflation (without food and energy prices) has slowed as well, from about 2.3 percent last summer to 1.1 percent in February.

In turn, Poland’s Monetary Policy Council (RPP), the National Bank of Poland’s interest rate setting body, has slashed rates. It began with a quarter-point cut each month from November through February, and then cut rates by a further half point in March. That put Poland’s main interest rate at a record low of 3.25 percent.

Economists were mixed, however, as to whether the RPP would continue to cut. The 50-basis-point cut at the beginning of March shocked analysts, most of whom were expecting the slow-moving council to trim rates by just 25 basis points, if at all. Since February, NBP president Marek Belka, who also heads the RPP, had been indicating that the easing cycle was coming to a close. He called the March cut a “full stop” at the end of the series of cuts – but in the same breath refused to rule out more if macroeconomic data continued to come in worse than expected. He said that the council was now in “wait-and-see” mode, but after the surprising March cut, analysts were unable to say whether more cuts could or could not be expected.

Danske Bank, for one, was convinced that more cuts were on the way. “We strongly believe that the NBP has been overly hawkish and that further monetary easing is needed,” the bank’s analysts said. “We believe that macroeconomic data over the coming months will confirm that not only is growth continuing to slow but that inflation will also significantly undershoot the NBP’s own 2.5 percent inflation target in the coming year. Therefore, more rate cuts are likely.”

At the same time, economists from Morgan Stanley said that no more rate cuts were in store, and that the next move we would see in terms of interest rates would be a rise, likely sometime in 2014. “We think that the next move in rates is up, in 2014,” economist Pasquale Diana wrote in a statement for the investment bank.

Data showing that both industrial output and retail sales had fallen in February, was unlikely to influence another rate cut, Mr Diana said. “The Monetary Policy Council is set to wait and see for some months, and we think there are no further cuts from here,” he added.

So consumers and businesses will also have to “wait and see” what the RPP decides to do in upcoming months. Much of that will be tied to whether or not the Polish economy shows signs of deterioration or recovery. And it will especially depend on inflation.

But whether Polish consumers decide to spend more – and hence whether businesses decide to begin raising prices again – will depend on whether there are jobs. And on that front, the outlook is far from rosy.

Unemployment up, up, up

The days when Poland was recording figures of 20 percent unemployment are gone – but certainly not forgotten, and the monthly figures continue to inch toward that number. In February, unemployment reached 14.4 percent – in line with expectations, but nonetheless putting a significant drag on the economy.

And while February is traditionally the month of the year that sees the highest unemployment rate due to seasonal factors (construction firms hire in the summer and lay off workers for the winter), the long-term trend is disheartening. In February of 2012 unemployment was at just 13.5 percent, in February 2011 it was at 13.4 percent and in February of 2010 it was 13.2 percent. In July, when unemployment is typically at its lowest, unemployment has been increasing as well. In 2010 it was at 11.5 percent and in 2011 it was at 11.8 percent, but in 2012 it was 12.3 percent.

Most economists expected the unemployment rate to remain high throughout the year, dropping to 13 percent in the summer and coming back to around 14 percent by year-end.

Exports the savior?

With that outlook, it seems that consumer spending won’t be the savior of the Polish economy, as it was in the 2009-2011 period. There is, however, much hope for exports.

The continuing uncertainty in the euro zone has significantly impacted the złoty, keeping it relatively weak against even the euro itself. While that is a tough pill to swallow for Poles who took out mortgages denominated in euros and Swiss francs during the boom years, it remains a source of strength for Poland’s exporters, who gained large chunks of European and other international markets when the crisis hit – and the złoty tanked – in 2009.

Already in 2012, Poland’s exports were picking up. In the Q1-Q3 period, Polish food exports reached €12.5 billion, some €1 billion more than in the same period of 2011, according to Poland’s ministry of agriculture. Various estimates for the whole of 2012 put the final figure at €17 billion. If those numbers are confirmed by Poland’s statistical office, it will make 2012 the best year ever for Polish food exports. A decade previous, food exports had only reached half that figure.

Another sector that saw significant growth in exports last year were cosmetics (5 percent higher than in 2011). Auto exports, while lower than in 2011, were likely to finish 2012 better than expected, despite lower car sales in key European markets.

As a whole, exports rose 4 percent in 2012, to €146 billion, according to the National Bank of Poland. A study by Oxford Economics and HSBC expect it to continue to grow, by 5.8 percent in 2013 and by 7 percent in 2014. Despite sluggish economies in Europe, Polish firms are expected to find more markets for their goods in Eastern Europe and Asia. In the 2016-2020 period, the study found that Polish exports would rise by some 55 percent.

Since exports account for 47.5 percent of Poland’s GDP, all of that positive data could indicate that exports will prove the engine of Poland’s growth in the coming years. With Polish firms becoming ever more modern, quality-oriented and export-savvy (see sector analyses, pp. 29-69), it’s not so hard to believe.

Some of you may remember the stories we did a couple of weeks ago on US Congressman Lamar Smith's opposition to expanding the Visa Waiver Poland to include Poland. You can find those stories here and here.

Representative Smith, the chairman of the House of Representative's judiciary committee, did get back to us, and I wanted to post his response here, without any comment of my own:

“Poland is a close friend and ally to the United States and my concern has nothing to do with Poland, but rather with the Visa Waiver Program itself,” Rep. Smith writes. “The Visa Waiver Program should not be expanded because half of the countries already participating have not met specific security requirements mandated by Congress and we do not have a functioning biometric exit system. We know that terrorists have used this program to enter the U.S. and about 40 percent of illegal immigrants in the U.S. are here because they overstayed their visas. Why should we expand a flawed program that facilitates illegal immigration and leaves the U.S. vulnerable to terrorist attacks?”

I leave it to you to judge his arguments. What do you think? Should the US refrain from expanding the Visa Waiver Program on security grounds? Is it fair for allies such as the UK and France to be included in the program, but for Poland to be left out?

Please let us know what you think in the comments section or on Facebook.

President Obama's ugly gaffe Tuesday has Poland's media and politicians in a tizzy. It's no wonder, Poles don't like being held responsible for Nazi crimes, and terms such as “Polish death camp” risk doing just that.

The matter isn't trivial. Millions of Poles died in Nazi German death camps during World War II – a fact that is sometimes glossed over in the West. If we want to make sure crimes such as the Holocaust never happen again, we have to get the history straight.

Alex Storozynski, the president of the Kościuszko Foundation, pointed this out a couple of years ago in a lovely post at The Huffington Post.

While some pooh-pooh the possibility of anyone confusing the Polish victims with Nazi perpetrators of World War II crimes, the risk is very real. Mr Storozynski mentions a documentary by Canadian filmmaker Violetta Cardinal in which she interviews school children who, when asked who built the Auschwitz concentration camp, answer “I guess the Polish people,” citing the very words “Polish concentration camp.” Find that at the 1:25-minute mark here.

He also quotes the Wall Street Journal, which points out that the term “Polish concentration camp” isn't even accurate geographically, since Auschwitz, for example, was on German Reich territory during World War II.

Mr Obama obviously didn't intend for his words to offend. He was honoring a hero of the Polish resistance, after all. But time and again Mr Obama has shown too little regard for the sensibilities of Poles. That's no way to treat a staunch ally, and speaks volumes to where he prioritizes the Polish-American relationship. Could you imagine him making a similar mistake regarding the British, Canadians or Chinese?

The White House contends that “The President has demonstrated in word and deed his rock-solid commitment to our close alliance with Poland.” I beg to differ. His sluggishness in working to put Poland in the Visa Waiver Program, his announcement that he was scrapping President Bush's missile-shield plans on the anniversary of the Soviet invasion of Poland, and his administration's decision to send inactive Patriot missiles to Poland when the Poles were expecting operational ones, all tell a different story.

Perhaps the Polish-American relationship just isn't that important to President Obama. Who could blame him? He's got bigger issues on his plate. But at some point, he will need an ally in Europe.

Despite the slaps in the face mentioned above, Poland will be there. Poles know that words – and what they mean – are important. And Poles know the meaning of the word “ally.”

Does President Obama?

Below find my comment to readers that will appear in Monday's edition of Warsaw Business Journal. We felt it was appropriate to place it here, on the blog, before WBJ went to press.

Dear readers,

It is rare that I take the opportunity as editor-in-chief to address you directly. As a newspaper, we like to keep to the standard Western newspaper profile, with simple news and opinion sections, and no weekly comment from the editor, which many weekly magazines have.

This week we break from that tradition for a very important reason – a missing little girl. Six-month-old Magda was kidnapped on Tuesday, and so far no trace of her has been found.

Some might ask why we, a business newspaper, would carry this story at all, much less place it in one of our most important sections (see this story, an edited version of "In the Spotlight" in next week's edition), as well as deviate from our standard opinion-page format. Unlike our usual coverage of politics, current events or economics, this story can in no way be construed to have any relevance to business, our main area of interest.

But we also have a very clear sense of community. Poland is our home as well, and the citizens who live and work here are members of a society to whom we feel a sense of responsibility. We cannot shirk this responsibility, with the resources we have at hand, to tell this story in the hopes that we may be able to contribute to bringing this saga to a happy end.

Therefore, not only are we devoting two pieces in this week's paper to Magda and her story, but we will also be following this story closely on our website and in future issues. 

There may be those who will accuse me – as a father of two children under three years of age – of emotional attachment to this story. I plead guilty. Magda's story has touched me, as it has touched many in Poland. But as a journalist covering this community, I see nothing wrong with emotional attachment to that community, as long as we hold to our honest coverage of the news. In covering Magda's plight, I  see no way in which we have deviated from that mission.

We therefore include a picture of Magda here. She is six months old, and according to the police she is between 60-70 cm (23-28 inches) in height, with olive eyes and short, dark-brown hair. Her front bottom tooth has just erupted.

She was last seen at 6 pm last Tuesday in Sosnowiec, in Poland's southwestern Silesia voivodship. She was wearing a pink hat with a white triangle in the front, a beige plush jacket-and-pants set with a zipper and white gloves. She was in a pink blanket and holding a multicolored teddy bear.

Police say that anyone who may have information regarding Magda's whereabouts should call the Sosnowiec Police at +48 (32) 296-1255, or the nearest police unit. In Poland, these can be reached by simply dialing 997.

As WBJ went to press there was already a reward of zł.130,000 (€30,000, $40,000, £25,000) being offered for information that leads to Magda.

We understand that among our readership there is little chance that someone may have such information. But there is a chance – and we know that it can't hurt to spread the word. 

As we go to press on Friday evening, we also know that there is a chance that Magda could be found before we even reach our readers on Monday. We can only hope that will be the case. 

In the meantime, as long as she has not been found, we must do what we can to help bring her home. Our sense of community and morality demands it. 

Magda 

Hair: dark brown
Eyes: olive green
Height: 60-70 cm
Clothes: pink hat, beige two-piece plush suit, pink blanket
Last seen: around 6 pm, January 24, 2012, Sosnowiec
Distinguishing features: one bottom front tooth
Those with information should call: +48 (32) 296-1255 

For more information, including more photographs of baby Magda, please visit the website of the Katowice police (in Polish).

The importance and reputation of the main rating agencies have diminished as they are responsible for some bad calls made in the last 2-3 years. The market itself proved what it thinks of their decisions (see how cutting the USA’s rating caused its bond yields to decrease, ignoring France and EFSF’s rating cut). 

Creating new, 'European' rating agencies might only worsen the situation, allowing more institutions to rate debt. If that happens, I see 'Europe' and the 'US' competing with each other to prove which one is worse (not better, that is the difference) but this could be an ugly fight. The more rating agencies, the less deciding power they have, but at the same time they can cause more confusion with their decisions. 

I agree that credit rating cannot be done in the current form, changes need to be made. It seems the idea of privately owned rating agencies has been exhausted. I see a solution (a utopian one) in a global, independent, rating agency, government/state-sponsored, with the best analysts rating credit. If more agencies enter the market, the more inclined they would be to rate better the credit they are paid to rate.