Two bits of macroeconomic news dominate the headlines today. Poland's PMI (Purchasing Managers Index) came in far higher than expected, and the złoty keeps moving up, up, up - especially against the dollar.
Analysts were eagerly awaiting the Purchasing Managers Index figures yesterday, as many see it as an indicator of business sentiment, and hence economic growth. A higher index means more businesses are buying goods and supplies, meaning they are ramping up production - presumably in response to some demand or expected demand. In June, PMI was at 43 points, and most analysts had expected a slight improvement in July to between 43.5 and 43.8. But the numbers were far better than that, and came in at 46.5 points. That seems to indicate that businesses are bullish about the economy, and beleive that they can produce more than they were at the nadir of the slowdown.
As if on cue, the IMF also announced yesterday that it may revise up its GDP growth forecast for Poland. It currently foresees growth of 0.7% this year, and 1.5% in 2010. Poland's GDP grew by 0.8% in the first quarter of this year.
As for the złoty, it continues its rise, and is well under zł.3.00 to the dollar - at zł.2.88 today.
Puls Biznesu reports that the złoty is close to breaking records, and says that the analysts it surveyed expect the złoty to continue strengthening, after a small correction. That small correction will happen this month, the paper says, and the złoty will be just a tad weaker than it is now against the dollar, euro and Swiss franc. Nevertheless, it is expected to remain far stronger than it was at the end of last year and the beginning of this year.
One interesting thing to consider is, if this really is the beginning of a recovery (which is far from certain), what will it mean for the PO government, which has been slowly but steadily losing popularity? Will they be able to claim their "economic miracle" and keep taxes low? It is important to remember that only last week President Kaczyński signed Poland's anti-crisis bill, and we are not likely to see its effects until the beginning of next year. Will the recovery already be in full swing then? Will we find that the government had unnecessarily spent billions on a recovery bill that was not needed, or was implemented too late? Will the resulting gaping deficit mean that it will have to raise taxes in the middle of a fragile recovery?
We will just have to wait and see to get the answers.
Yesterday data from Poland's statistical office surprised everyone – retail sales rose 0.9% in June, much higher than the 0.4-0.5% forecast. What was less of a surprise was the unemployment figures, which came in at 10.7%, down one-tenth of a percent from the 10.8% recorded in May. That had been predicted.
On the face of it, it would seem that these numbers confirm that the Polish consumer remains unflapped, and continues to power the economy along, potentially keeping the economy out of recession this year.
But most analysts don't see it that way. They point out that retail sales actually dropped 0.7% in real terms (including inflation), and that due to the summer construction season, unemployment should have actually dropped by more than it has. Here is what some of them had to say:
Mateusz Szczurek from ING Bank ¦l±ski:
“June retail sales managed to record 0.9% YoY growth in nominal terms, beating the 0.4% YoY consensus forecast, but this result which means a 0.7% YoY fall in real terms, the fifth negative reading in a row, should still be called poor. ... Unemployment went down from 10.8% to 10.7%, which is nevertheless a sign of worsening rather than an improvement on the labour market as the seasonal effect alone called for a 0.2pp drop.”
Lars Christensen of Danske Bank:
“In general, economic activity should continue to decline in the coming quarters. GDP growth should move into negative territory in Q2 09 and most likely bottom out in Q3 and Q4 09. Although the Polish economy has not been as hard hit in terms of drop in economic activity, there are not clear signs of a swift recovery. We expect GDP growth of -0.3% y/y in 2009 and 0.2% y/y in 2010.”
Piotr Kalisz from Citi Handlowy:
“In the course of the last year, the standard margin of error for market forecasts was 1.5%. Thus, since this time the “surprise” was not very big in comparison to the “surprises” noted in the past, it's hard to call this data as a breaking point. Secondly, sales rose in nominal terms, but in real terms – it noted a 0.7% y/y drop. That means that the nearest quarters could bring a further slowdown in consumption, which would also cause a weakening of GDP growth. ... But despite the data not being a breaking point, we agree with the view that GDP growth in the second quarter may be higher than estimated at the beginning of the year. [Still,] it is decidedly too early to speak of the end of the slowdown. A the end of the year we expect another steep rise in unemployment, which will bring with it a weakening of consumption.”
Well, there you have it – the good news is not really good news at all, just bad news in disguise, according to the experts.
And they may be right – hey are experts after all. But anecdotal evidence obtained by this journalist belies these pessimistic analyses. I agree that it is too early to be talking about a recovery – but the market has definitely picked up a small bit: Businesses are seeing more activity, according to many managers.
Whether this constitutes the beginning of a recovery or just a blip in the downward trend remains to be seen.
