European slowdown poses danger to Polish exporters
If top exporters see sales shrink to Europe, they could also come under further pressure from zloty appreciation, which is expected to continue in 1996, analysts said.
Last year, strong sales for most exporters helped offset the nearly 10% appreciation of the zloty.
Already, preliminary results for the first quarter of 1996 are highlighting the possible dangers looming for the industry, according to economists.
"I am quite concerned about the results of the first quarter," said Maciej Krzak, an economist with ING Bank. "They show a $667 million (trade) deficit in January, comparing to $280 million in January 1995."
The strongest signal for a downturn for Polish exporters comes from Germany, which is Poland's largest export market and in 1994 accounted for nearly 36% of all Polish exports. German growth in 1996 is expected to be flat at about 1.5% to 1.7%, said Jan Winiecki, an economist and professor of international trade at European University in Frankfurt.
"Because of this 'flat' growth rate, Polish forecasts to achieve 7% of economic growth seem unlikely," he added.
Although Germany and the rest of Europe are experiencing a slowdown, an actual recession has not yet occurred. Rather it is now a quasi-recession, said Bohdan Wyýnikiewicz, from the Gdansk-based Institute of Market Economy Study.
Wyýnikiewicz said he does not believe that this slowdown will yet have a serious impact on Polish exports. Wyýnikiewicz's optimism is based on the last European recession of 1991-1992, which did not seriously affect Polish exports.
"The recession was overbalanced by the strict zloty exchange rate, introduced in May 1991 and maintained for 15 months, despite inflation," he said.
But some Polish exporters are starting to feel the pain of Europe's slowing growth. Kopex, which provides construction services, has already been affected by stagnation in Germany.
"We can already see the results. Some of our partners went bankrupt," said one Kopex executive. "The access to the (German) construction market has become limited."
For the moment, Kopex has managed to maintain its foreign sales by replacing construction services with mining and renovation services.
But a full-fledged recession in Germany and the rest of Europe could make it impossible for exporters to stay afloat, even if they switch business and product areas.
Economists said that the upswing in Europe after the bleak days of the early 1990s, which were marred by recession and the European currency crisis, led directly to the growth of the Polish economy.
"The end of the recession in Germany in 1993 resulted in 40% growth in Polish exports," Winiecki said. "In 1995, at least 2% out of 6.5% of economic growth could be attributed to the improved economic situation in Germany."
Wyýnikiewicz argues that part of Poland's success in European markets during the post-recession period was due to the country's lower costs. "Polish goods are still more competitive in terms of their prices."
This could also be a plus during a recession, as many consumers will base their purchasing decisions on price rather than quality. But this price advantage could erode with further zloty appreciation in 1996.
"The Polish zloty will get stronger, with an estimated appreciation of 3%, compared to the Deutsche Mark," said Jan Mieczkowski, a treasurer with Deutsche Bank Polska.
Although still appreciating, the zloty's slower growth rate in 1996 as compared to 1995 means fewer firms are likely to see dramatic currency losses as happened last year.
Szczecin shipyard was the most notable for such losses. It estimated losses of about zl. 80 million ($32 million) due to zloty appreciation last year. Some companies were able to avoid similar losses by hedging. Gdynia shipyard, for example, said it prevented currency losses by hedging its dollar contracts.
But even if zloty appreciation does not have an obvious affect on profits, it can force exporters to react in other ways.
"In our case, the stronger zloty means that some goods, like jams, are out of the export list because they become too expensive," said Andrzej Szumowski, a board member for Agros Trading SA. "In this case we try to replace them with other products."
Continued cost-cutting, rethinking product mixes and upgrading the quality of goods is the best defense Polish exporters have against currency appreciation, economists said.
"First of all, they should reduce their costs," said Stefan Kawalec, former deputy finance minister and current adviser to Bank Handlowy. "Secondly, they should improve their quality."
The companies best suited to follow these steps are small- and medium-sized exporters, Kawalec said. These firms are in a better position to lower costs and have the flexibility to compete in a changing market.
"Big companies, with large overheads, can find themselves in trouble," he said.
Polish exporters should also change their export sales structure, moving from raw materials and semi-processed goods to final products, said economist Winiecki of the Frankfurt-based European University.
Last year, strong sales for most exporters helped offset the nearly 10% appreciation of the zloty.
Already, preliminary results for the first quarter of 1996 are highlighting the possible dangers looming for the industry, according to economists.
"I am quite concerned about the results of the first quarter," said Maciej Krzak, an economist with ING Bank. "They show a $667 million (trade) deficit in January, comparing to $280 million in January 1995."
The strongest signal for a downturn for Polish exporters comes from Germany, which is Poland's largest export market and in 1994 accounted for nearly 36% of all Polish exports. German growth in 1996 is expected to be flat at about 1.5% to 1.7%, said Jan Winiecki, an economist and professor of international trade at European University in Frankfurt.
"Because of this 'flat' growth rate, Polish forecasts to achieve 7% of economic growth seem unlikely," he added.
Although Germany and the rest of Europe are experiencing a slowdown, an actual recession has not yet occurred. Rather it is now a quasi-recession, said Bohdan Wyýnikiewicz, from the Gdansk-based Institute of Market Economy Study.
Wyýnikiewicz said he does not believe that this slowdown will yet have a serious impact on Polish exports. Wyýnikiewicz's optimism is based on the last European recession of 1991-1992, which did not seriously affect Polish exports.
"The recession was overbalanced by the strict zloty exchange rate, introduced in May 1991 and maintained for 15 months, despite inflation," he said.
But some Polish exporters are starting to feel the pain of Europe's slowing growth. Kopex, which provides construction services, has already been affected by stagnation in Germany.
"We can already see the results. Some of our partners went bankrupt," said one Kopex executive. "The access to the (German) construction market has become limited."
For the moment, Kopex has managed to maintain its foreign sales by replacing construction services with mining and renovation services.
But a full-fledged recession in Germany and the rest of Europe could make it impossible for exporters to stay afloat, even if they switch business and product areas.
Economists said that the upswing in Europe after the bleak days of the early 1990s, which were marred by recession and the European currency crisis, led directly to the growth of the Polish economy.
"The end of the recession in Germany in 1993 resulted in 40% growth in Polish exports," Winiecki said. "In 1995, at least 2% out of 6.5% of economic growth could be attributed to the improved economic situation in Germany."
Wyýnikiewicz argues that part of Poland's success in European markets during the post-recession period was due to the country's lower costs. "Polish goods are still more competitive in terms of their prices."
This could also be a plus during a recession, as many consumers will base their purchasing decisions on price rather than quality. But this price advantage could erode with further zloty appreciation in 1996.
"The Polish zloty will get stronger, with an estimated appreciation of 3%, compared to the Deutsche Mark," said Jan Mieczkowski, a treasurer with Deutsche Bank Polska.
Although still appreciating, the zloty's slower growth rate in 1996 as compared to 1995 means fewer firms are likely to see dramatic currency losses as happened last year.
Szczecin shipyard was the most notable for such losses. It estimated losses of about zl. 80 million ($32 million) due to zloty appreciation last year. Some companies were able to avoid similar losses by hedging. Gdynia shipyard, for example, said it prevented currency losses by hedging its dollar contracts.
But even if zloty appreciation does not have an obvious affect on profits, it can force exporters to react in other ways.
"In our case, the stronger zloty means that some goods, like jams, are out of the export list because they become too expensive," said Andrzej Szumowski, a board member for Agros Trading SA. "In this case we try to replace them with other products."
Continued cost-cutting, rethinking product mixes and upgrading the quality of goods is the best defense Polish exporters have against currency appreciation, economists said.
"First of all, they should reduce their costs," said Stefan Kawalec, former deputy finance minister and current adviser to Bank Handlowy. "Secondly, they should improve their quality."
The companies best suited to follow these steps are small- and medium-sized exporters, Kawalec said. These firms are in a better position to lower costs and have the flexibility to compete in a changing market.
"Big companies, with large overheads, can find themselves in trouble," he said.
Polish exporters should also change their export sales structure, moving from raw materials and semi-processed goods to final products, said economist Winiecki of the Frankfurt-based European University.
