C/A deficit eases govt's problems
Poland's current account (C/A) deficit has started to show signs of improvement, although economists are warning that problems for the economy are far from over.
The latest figures for July show Poland running a C/A deficit of $676 million or 7.4% of gross domestic product (GDP). After hitting an annual figure of 8.3% in March, the accumulated external shortfall of $6.07 billion since January has gradually eased to its current estimated level.
"The tendency is clear and it's going to get down to below 6% in two years' time," said Witold Chusc, a macro analyst with CDM Pekao Securities. But Chusc warned that anything over 4% would still leave Poland in a risk zone for an economic crisis. He said the C/A blues were certainly not yet over. "Six to six-and-a-half (percent) should be easy," he said. "But the trouble will be further improvement because it depends on the competitiveness of Polish companies."
Despite the weak euro, which is pushing up the prices of Polish goods in the European Union (EU) and badly affecting exports, recent export figures indicate that demand for Polish goods is steadily rising.
Products sold to the EU, which receives two-thirds of Poland's exports, increased 18% from May to July, and have grown 20% in dollar terms and 42% in euro terms since the beginning of the year, said Erik Nielsen, an economist with Goldman Sachs (London). "Now that's damned impressive growth," he said.
Recent statistics show July exports up 20.1% from the corresponding period last year to $2.513 billion, while imports rose 2.7% to $3.507 billion. Exports from January to July increased 1.9% year-on-year to $15.7 billion.
Rising GDP and falling unemployment in the EU, an improving Russian economy and a weak zloty in the past few months all contributed to increased external demand for Polish products, economists said. But they added that changes would have to be made to take export levels to new heights.
"We are not exporting very sophisticated products like computers and mobile phones," Chusc said. "But I think the structure of our exports is improving. I think that there is a place for Polish products on the EU market."
Economists predict the automobile parts industry will become particularly important to Poland's economic security. Foreign direct investment (FDI) has been substantial in this sector, with companies such as Isuzu producing engines in Poland and Delphi, which makes parts for General Motors, recently announcing new operations in Krakow, Chusc said.
To date, the automobile sector has brought $4.4 billion in FDI into Poland, said Marcin Mroz, an economist with Wood & Co. brokerage. One benefit for the industry has been an improvement in quality, he said, something that needs to happen in other sectors.
But Poland still needs to export more high-tech goods, Mroz said. While Hungary produces and exports products for companies such as IBM, Poland has concentrated on furniture, TV sets, machinery and semi-finished products.
Nielsen predicts that if the ruble continues to appreciate and the Commonwealth of Independent States' economy to improve, Polish exports will get an additional boost. Before the Russian economic crisis of 1998, he said, Poland's overall export growth rates were 12-18% annually. Although exports in the first quarter of 2000 declined 9.7% against the same period of the previous year, he said, they were up 8.8% in the second quarter.
Economists said the C/A gap would only be narrowed through a reduction in its most heavily weighted component, the trade deficit.
