Businesses give mixed signals on economy

by Paul Shockley

"There are still more black clouds than bright skies."Fresh economic data show small improvements in the banking and manufacturing sectors but a rise in unemployment and the continued decline of other key areas have many analysts saying the worst may still lie ahead.
"We should hold off on comments that things are ‘bottoming out,'" said Katarzyna Zajdel-Kurowska, head of treasury research at Bank Handlowy. "There are still more black clouds than bright skies."The storm on the labor market worsened in December, as the Central Statistical Office (GUS) reported unemployment jumped to 17.4% - indicating nearly 3.2 million are jobless - up from the previous month's post-transition high of 16.8%. Analysts said to expect jobless levels to soon hit 18% and added that 20% was possible toward the end of 2002."(Layoffs are coming from) all of the sectors," said Andrzej Myśliński, capital investment specialist with Bank Pekao. "Most of the (Warsaw Stock Exchange) listed companies are saying they're cutting costs, employees."
Myśliński pointed to heavy industry, particularly state-owned steel firms being restructured by the government, as an acute problem area. Some 7,500 jobs were cut last year as production fell 16% in an industry struggling to remain competitive against foreign competition.Adding to the gloom was the continued decline in two of GUS's key business indices. Construction dropped to minus 33 points from minus 32 in December - off nearly 33 points year-on-year. The retail index also continued its tumble from December.
However, the survey, which evaluates business prospects for some 10,700 companies, showed an improved manufacturing index - up the first time in five months to minus 14, from December's minus 22 but still 11 points off year-on-year.
"Forecasts for future demand are favorable, and they are followed by the forecasts in production output," GUS said of January's manufacturing results.
Still, most firms assessed their current financial situation as bad. "Job cuts are expected in the next three months," GUS said."The barriers (to financial health) are insufficient national demand (76% of respondents), high taxes (59%), unclear law system (49%), insufficient foreign demand (57%), poor credit conditions (36%) and competitive imports (36%)."
The poor outlook extends to the banking sector, despite increased optimism in January's banking climate index, according to Piotr Kwiatkowski, vice president of Warsaw's Pentor Institute. The research group measures bank managers' confidence in the monthly poll.The index rose in January for the first time in four months - only one month after recording bankers' lowest confidence levels in the poll's eight-year history. Among other reasons, bankers in December cited a tax on savings interest enacted toward the end of 2001, prompting clients in November to shield their money in investment funds.
A reaction, the Pentor Institute said last week, that has tapered off.
"After some weeks of panic, the behavior of clients has grown more predictable," Kwiatkowski said. "Bankers have even noticed growth in deposits with the introduction of the euro, as clients who had foreign currencies established new accounts (in euros)." But January's confidence gains are tempered by anticipated sector layoffs, and general economic uncertainty, Kwiatkowski said. "They (bank managers) expect a difficult year," he said. "It's impossible (for them) to expect substantial growth in individual deposits, or in credits."