Economy gets back on track
So far this year the Polish economy has been doing its best impression of Dr Jekyll and Mr Hyde. After a first quarter that shocked analysts with low economic and investment growth, figures for the next three months inspired optimism. Unemployment continued to drop, to 18 percent in June, and wages were 4.5 percent higher than a year earlier. Inflation for the year to June was below target, at 1.4 percent. Food prices were lower, and savings were higher, up 12.3 percent year on year. The Monetary Policy Council (RPP) slashed interest rates to their lowest level in history, then cut them again by 25 basis points in July to 4.75 percent. All this might suggest that Poles are finally ready to spend and businesses are ready to invest, improving the rate of "absorption" (household consumption plus fixed investment), which economists agree is the key to healthy growth this year.
However, it's not quite time to break out the champagne. Analysts are lukewarm about the positive numbers, noting that it's difficult to peg down a trend. The encouraging data after such a disappointing first quarter points less to a rally than a correction, they say.
Rafał Antczak, economist, Case Advisors:
"Wages are growing, but they were declining in real terms in recent months, so even this current rise in wages does not equal a build-up of household demand. As for household savings, I would say that this results from financial gains, as well as the savings of a relatively small group of households. It's the same with companies. The big companies are saving, and this is a steady trend. So it is still not clear that investment will pick up strongly with the savings growth of enterprises.
"I would not like to see rates come down by 50 or 75 [more] basis points by the end of the year. That would be unwise, because the risk might be that in a year's time the rates could rise again. The worst scenario that could occur for Poland is rising interest rates in the second half of next year.
"The numbers show what we predicted. Everything is in line more or less. We haven't changed our forecast [of four percent growth for the year]."
Rafał Benecki, senior economist, ING Bank Śląski:
"[The situation] is not significantly better. Wages in June increased but this was due to a one-off effect in the mining sector. Wages rose 30 percent last month in mining, while in the industrial sector they rose just 2.1 percent. We've been seeing employment increase gradually and we expect that to continue throughout the year. So wages will rise but it won't be significant.
"We see signs that the economy is turning a corner, however we are treating all this data as signs of a gradual recovery rather than a rebound.
"Our prediction for growth for the second half is 4.5 percent, and for the year 2005 about 3.7 percent."
However, it's not quite time to break out the champagne. Analysts are lukewarm about the positive numbers, noting that it's difficult to peg down a trend. The encouraging data after such a disappointing first quarter points less to a rally than a correction, they say.
Rafał Antczak, economist, Case Advisors:
"Wages are growing, but they were declining in real terms in recent months, so even this current rise in wages does not equal a build-up of household demand. As for household savings, I would say that this results from financial gains, as well as the savings of a relatively small group of households. It's the same with companies. The big companies are saving, and this is a steady trend. So it is still not clear that investment will pick up strongly with the savings growth of enterprises.
"I would not like to see rates come down by 50 or 75 [more] basis points by the end of the year. That would be unwise, because the risk might be that in a year's time the rates could rise again. The worst scenario that could occur for Poland is rising interest rates in the second half of next year.
"The numbers show what we predicted. Everything is in line more or less. We haven't changed our forecast [of four percent growth for the year]."
Rafał Benecki, senior economist, ING Bank Śląski:
"[The situation] is not significantly better. Wages in June increased but this was due to a one-off effect in the mining sector. Wages rose 30 percent last month in mining, while in the industrial sector they rose just 2.1 percent. We've been seeing employment increase gradually and we expect that to continue throughout the year. So wages will rise but it won't be significant.
"We see signs that the economy is turning a corner, however we are treating all this data as signs of a gradual recovery rather than a rebound.
"Our prediction for growth for the second half is 4.5 percent, and for the year 2005 about 3.7 percent."
