Export rally may soon fade
What growth the economy has seen recently has been driven mostly by strong exports, whose value reached zł.180 billion (€38.3 billion) in the year to October. This represents an increase of nearly 7.5 percent on the corresponding period in 2002. Such growth even led to the current account going briefly into surplus towards the end of the year. Its subsequent swing back into deficit does not worry experts unduly, as it was only to be expected at a time of budding recovery. Most experts agree that the deficit for the whole of last year could be as low as 1.6 percent of GDP. That does not, however, mean that the continuation of the trend this year should be taken for granted.
European Union accession, commonly identified as the single most important cause of export growth, may paradoxically lose its pulling power around the time that it actually takes place.
"There are grounds for concern that the markets may already have priced that factor in and (accession) will no longer provide the stimulus that it has to date," said Jean Lemerre, president of the European Bank for Reconstruction and Development. It is notable that as much as one half of the country's exports are in fact movements of goods to other national branches within the same company, indicating that foreign direct investment (FDI) has been the chief driver of export growth. It is therefore worrying that FDI levels have been falling over recent years and that there is little indication of the trend reversing in the immediate future.
Dariusz Filar, chief economist at Pekao SA, points out that domestic producers have paradoxically benefited from the recent stagnation in the established EU member states, in particular Germany. This has led consumers to favor cheaper products, shunning the established brands of Western European companies.
"I do not, however, see a dramatic improvement in the quality of Polish exports," Filar said. "In consequence, there are grounds for concern as to the sustainability of that growth once the economic climate recovers in countries (such as Germany)." His skepticism is not, however, universally shared.
JP Morgan's October 2003 bulletin points to the danger that an appreciating currency could pose to the country's export performance by reducing its price competitiveness. The report, however, goes on to say that should the currency remain weak in the face of the continuing rise of the euro, the current pattern of economic growth, with exports as the main engine of growth, could continue for "another two to three years."
The situation on the global currency markets has been favorable for the country's exporters with the ascendancy of the euro making local products attractive for consumers in the EU, which itself accounts for more than two-thirds of total exports. It is, moreover, likely that this year will see a further strengthening of the euro, as the USA's huge current account deficit will contribute to the decline of the dollar.
There are, however, some sectors that may not benefit from the greenback's decline. Last year's export hit was the weaponry produced in Poland, the contracts for which are denominated in the dollar. Last year, one company alone, PHZ Bumar, exported three times as much as the whole country had managed in 2000. The value of arms exports in the year up to September was zł.642 million ($175 million), representing a 120% plus increase on the previous year. This is expected to grow to as much as zł.1.1 billion ($300 million) this year mainly due to a zł.1.47 billion ($400-million) contract for 48 PT-91M tanks for Malaysia. A down payment has already been made with further payments spread over the period up to 2006.
Bumar chief executive Roman Buczyński remains upbeat about the prospects for the industry, saying that locally made military equipment "has proven itself on battlefields across the world - from the Balkans to Afghanistan to Iraq." He is, therefore, confident that even a substantial decrease in the value of the dollar would be unable to offset the industry's strong performance.
Most sectors, however, rely on exports to destinations less exotic than Malaysia. According to the list of the country's 500 largest companies, published by the Rzeczpospolita daily, the country's largest exporter in 2002 was Volkswagen Motor Polska, which exported 90 percent of its production, worth nearly zł.4 billion. Last year, however, Volkswagen was overtaken by Fiat, which shipped well over the planned 122,000 cars of its hit model Panda, worth around zł. 4.5 billion. The company expects this figure to be even higher this year with sales fuelled by the strong euro.
These success stories may not, however, provide a reliable guide to the country's overall export performance this year. While the local operations of multinationals such as Fiat may be looking at a bright future, many smaller companies could be caught unawares by a return to favor of the established global brands amidst a warming global economic climate. As experts point out, most growth in the last two years can be put down to passing factors, such as a strong euro and the anticipation of EU accession. Without increased spending on marketing and an improvement in the quality of locally made products, the party may soon be over.
European Union accession, commonly identified as the single most important cause of export growth, may paradoxically lose its pulling power around the time that it actually takes place.
"There are grounds for concern that the markets may already have priced that factor in and (accession) will no longer provide the stimulus that it has to date," said Jean Lemerre, president of the European Bank for Reconstruction and Development. It is notable that as much as one half of the country's exports are in fact movements of goods to other national branches within the same company, indicating that foreign direct investment (FDI) has been the chief driver of export growth. It is therefore worrying that FDI levels have been falling over recent years and that there is little indication of the trend reversing in the immediate future.
Dariusz Filar, chief economist at Pekao SA, points out that domestic producers have paradoxically benefited from the recent stagnation in the established EU member states, in particular Germany. This has led consumers to favor cheaper products, shunning the established brands of Western European companies.
"I do not, however, see a dramatic improvement in the quality of Polish exports," Filar said. "In consequence, there are grounds for concern as to the sustainability of that growth once the economic climate recovers in countries (such as Germany)." His skepticism is not, however, universally shared.
JP Morgan's October 2003 bulletin points to the danger that an appreciating currency could pose to the country's export performance by reducing its price competitiveness. The report, however, goes on to say that should the currency remain weak in the face of the continuing rise of the euro, the current pattern of economic growth, with exports as the main engine of growth, could continue for "another two to three years."
The situation on the global currency markets has been favorable for the country's exporters with the ascendancy of the euro making local products attractive for consumers in the EU, which itself accounts for more than two-thirds of total exports. It is, moreover, likely that this year will see a further strengthening of the euro, as the USA's huge current account deficit will contribute to the decline of the dollar.
There are, however, some sectors that may not benefit from the greenback's decline. Last year's export hit was the weaponry produced in Poland, the contracts for which are denominated in the dollar. Last year, one company alone, PHZ Bumar, exported three times as much as the whole country had managed in 2000. The value of arms exports in the year up to September was zł.642 million ($175 million), representing a 120% plus increase on the previous year. This is expected to grow to as much as zł.1.1 billion ($300 million) this year mainly due to a zł.1.47 billion ($400-million) contract for 48 PT-91M tanks for Malaysia. A down payment has already been made with further payments spread over the period up to 2006.
Bumar chief executive Roman Buczyński remains upbeat about the prospects for the industry, saying that locally made military equipment "has proven itself on battlefields across the world - from the Balkans to Afghanistan to Iraq." He is, therefore, confident that even a substantial decrease in the value of the dollar would be unable to offset the industry's strong performance.
Most sectors, however, rely on exports to destinations less exotic than Malaysia. According to the list of the country's 500 largest companies, published by the Rzeczpospolita daily, the country's largest exporter in 2002 was Volkswagen Motor Polska, which exported 90 percent of its production, worth nearly zł.4 billion. Last year, however, Volkswagen was overtaken by Fiat, which shipped well over the planned 122,000 cars of its hit model Panda, worth around zł. 4.5 billion. The company expects this figure to be even higher this year with sales fuelled by the strong euro.
These success stories may not, however, provide a reliable guide to the country's overall export performance this year. While the local operations of multinationals such as Fiat may be looking at a bright future, many smaller companies could be caught unawares by a return to favor of the established global brands amidst a warming global economic climate. As experts point out, most growth in the last two years can be put down to passing factors, such as a strong euro and the anticipation of EU accession. Without increased spending on marketing and an improvement in the quality of locally made products, the party may soon be over.
