Is Poland’s economy ready for a rebound? That is the question economists and the business community – not to mention the average Kowalski – are asking themselves as Poland slogs through another year of slow growth. Now, just after the midway point of the year, the economy remains sluggish and unemployment high. But there are indications that Poland may just be turning the corner.
Firstly, it’s important to note that major government and global institutions are expecting Poland’s economy to pick up speed. In the first quarter, Poland’s gross domestic product grew at a rate of 0.5 percent compared to the same quarter of 2012, its slowest pace since Q1 2009. Poland’s statistics office, GUS, hasn’t revealed second-quarter GDP growth figures yet, but economists think that economic growth sped up to a rate of 0.7-0.8 percent. By the end of the year though, both the National Bank of Poland and the International Monetary Fund expect Poland’s GDP to grow by 1.1 percent. The Gda?sk Institute for Market Economics (IBnGR), a think tank, expects Poland’s economy to grow by 1.2 percent. In order to achieve that, growth will have to speed up significantly in the second half of the year.
|Source: Central Statistical Office|
There are signs that a recovery could be coming. Two forward-looking indicators calculated by the Bureau for Investments and Economic Cycles (BIEC) – one on the general economic climate and one on the labor market – show positive signs. BIEC’s economic climate indicator reached 146.1 points in June, an increase of 4.2 points, the largest such rise in nearly three years. The bureau’s labor market indicator was also positive: it fell two months in a row in June and July, a strong signal that a drop in the unemployment rate is on the cards. Economists at the bureau said the figures indicated that a rebound in the second half of the year was becoming more likely.
In a hopeful signal for businesses looking for capital and households looking for loans, the Pengab banking sector sentiment indicator, calculated by the Polish Bank Association (ZBP) and pollster TNS Polska, grew by 5.2 points month-on-month to 11.3 points in July. Polish bankers’ forecasts for corporate loans grew, as did the forecast for household loans.
But the strongest signal yet that Poland’s economy is on its way up was the Purchasing Managers’ Index, which in July showed that the country’s manufacturing sector was finally growing, after 15 months of contraction. The index score was 51.1 – any score above 50 indicates an improvement in business conditions, and it was the first such reading since March 2012. The score beat analysts’ expectations. Economists said it was a harbinger of stronger growth in the second half, with those from Citi Handlowy, Citibank’s Polish arm, saying growth in H2 could reach as high as 1.5-2 percent.
If Poland’s economy does indeed post much stronger growth in the second half of this year than it did in the first half, three key factors will have to align. First, domestic consumption (the engine that powered Poland’s economy during the first years of the global economic slowdown) will have to pick back up from their current doldrums. Second, investment – both foreign and domestic – will have to increase. Finally, exports, one of the few bright spots in Poland’s economy in the first half of the year, will have to continue to remain strong. Much of that will depend on the health of the economy of Poland’s largest trading partner, Germany.
Consumers ready to spend again?
By now most economists agree that the biggest factor that made Poland the only EU country not to go into recession in 2009 was strong domestic consumption. Powered by a flood of EU funding and government spending on construction projects, Polish wages continued to grow throughout the crisis, and consumers continued to spend. That lasted through 2011, when retail sales averaged annualized growth of a whopping 11.5 percent each month.
|Source: Central Statistical Office|
But by the second quarter of 2012, that growth had slowed sharply to about 6.5 percent. In the third quarter of that year it slowed to 5.3, and the fourth quarter, to just over 1 percent. In December, when the holiday season traditionally leads Poles to open their wallets, retail sales actually dropped by a full 2.5 percent. The slowdown had reached such proportions that Poles had decided to spend less on Christmas gifts and trimmings than the year before.
Economic growth followed the same trajectory, growing a relatively strong 3.5 percent in the first quarter, and then slowing to 2.3 percent in the second, to 1.3 percent in the third and 0.7 percent in the fourth quarter.
While retail sales rebounded slightly in January this year, to 3.1 percent, subsequent months saw spending fall back down, and economic growth with it. But the above-mentioned manufacturing numbers indicate consumers may be buying again. Indeed, the report’s authors said domestic demand was one of the factors behind the growth.
And there’s more evidence that consumers may have decided to spend again. Retail sales increased by 1.8 percent year-on-year in June. While that’s a far cry from the heady days of 2011, the figures were a strong improvement on the previous month’s 0.5 percent growth and strongly beat market expectations of just 1.1 percent.
Economists from Bank Zachodni WBK said that they expected the trend to last for several months. “We expect the pace of growth of retail sales to reach ca. 2 percent in H2 vs. 0.8 percent in H1 2013,” they wrote in an e-mail. Citi economists also said that the figures were a good sign of going forward. “All in all the improvement in real sales in Q2 was quite substantial, which we treat as a positive signal for GDP growth,” they said.
Moreover, the “Carrefour Barometer” an index of consumer sentiment compiled by IBnGR for the Polish branch of the FMCG retailer, grew by 1.9 points in July and amounted to -11 points. While the indicator was still in negative territory, it was also the second time the index had grown month-on-month. In June, it had increased by 2.6 points compared to May. The researchers that compiled the report said that factors behind the growth included increases in consumers’ propensity to buy and in consumer confidence.
One reason Poles may be more willing to spend is that the labor market is looking more favorable. Wages in the corporate sector grew by 1.4 percent