Exports increase despite strong zloty
By : Jeffrey Sparshott
Lodz-based Wolczanka is typical of many Polish companies that count on foreign markets for a significant chunk of their sales.
Despite the strong zloty and slowing economies to the west, the clothing manufacturer's exports are still positive.
"So far we're pleased with our export figures," said Beata Bartoszewska, head of Wolczanka's economic analysis team. "But we don't like the currency exchange rate (it) is the most important factor affecting exports."
Exports rose to more than $10 billion in the first four months of 2001, a 20% jump from the same period the previous year, according to National Bank of Poland (NBP) (http://www.nbp.pl) figures released last month. This strong showing follows 15.5% growth in 2000. But given the strength of the zloty and the slowdown in the European Union (EU) particularly in Germany analysts admit the performance is not easy to explain and most export projections for the rest of the year remain bleak.
"We believe export growth could slow in the coming months due to the strong zloty and slowdown in EU growth," Erste Bank noted in a recent report.
The most immediate problem for Polish companies is foreign exchange. The euro hit six-month lows on international currency markets last week, while the zloty has been especially strong. The currency has floated at around 3.40 to the euro this month, while in June 2000 it was 4.18.
Compounding concerns, European economic growth and demand for goods has been weak and is expected to get worse this year. Poland sends more than 37% of its exports to Germany and more than 70% to the EU, so Polish companies are deeply affected by their neighbors. Raw trade numbers have not reflected exporters' difficulties, but the bottom line is taking a hit, according to Central Statistical Office (GUS) (http://www.stat.gov.pl/english/index.htm) figures on non-financial enterprises.
Bartoszewska said Wolczanka was still showing healthy exports, but revenue was starting to drop. "However, the number of customers has not dropped," she said. "We're not losing customers. On the contrary we have many enquiries, but many of them don't lead to further cooperation because of the price caused by the high exchange rate."
There is little immediate hope for a weaker national currency, according to economists, although it should soften by the end of the year. A longer-term problem is an EU slowdown. According to Deutsche Bank research, Euroland imports were down 1% in the first quarter of 2001 as domestic demand rose very slowly. Germany's real imports fell much faster, 3.7% for the quarter. Germany's projected gross domestic product (GDP) growth in 2001 is only 1.6%.
Poland's domestic demand is also weak, leaving companies little option except to look outside the country's borders.
"Because we have very weak domestic demand, Polish companies fight to sell products abroad," said Iwona Pugaczewicz-Kowalska, senior macroeconomist with CDM Pekao Securities. "It depends on prices and demand. Polish companies are forced to look at markets abroad. We still expect that we will not have such strong exports in the future."
Some companies are already feeling the pinch. Warsaw-based chemicals firm Chiech saw its exports drop nearly 14% in dollar terms from the first quarter of 2000 to 2001, in part because of the relentless zloty, said Pawel Milobedzki, director of the company's corporate governance and human resources division.
The reason for the first-quarter decline in exports, apart from last year's worldwide worsening of the economic situation in the chemical sector, was the strengthening of the zloty, which caused the fall in the profitability of exporting and an increase in profitability of domestic sales," he said.
Most economists project a slowdown for exports. Dariusz Filar, chief economist for Bank Pekao, said Polish companies have increased productivity enough to combat the strong currency and that a change in the nature of the country's exports to more sophisticated manufactured goods will keep the country in good shape.
"The question is, how is it possible with a very strong zloty for exports to develop?" he said. "My answer is, first of all, we see very strong productivity growth in industry."
In 1999 the productivity growth per employee was 9%, in 2000 it was more than 14%, and in 2001 it will continue to grow, he said, meaning that the competitiveness of Polish products has been reduced by the zloty's strength but is offset by a high increase in productivity.
"The second element is that simultaneously Polish exports are going through a profound restructuring," Filar said. "Exports are moving toward goods of advanced technology. These goods are less vulnerable to changes of consumer confidence in foreign markets."
Machinery and transportation equipment make up a larger share of exports while basic commodities are less, he said.
The third element of Polish export strength is foreign. Subsidiaries of transnational companies account for more than half of all exports, reflecting the movement of multinational production to Poland and the inclusion of Poland in international distribution chains, he said.
"Our conclusion is that despite the strength of the zloty, exports will continue to develop," he said. "It's contrary to the point of view of many analysts. Many expect a collapse of Polish exports soon. We do not share this opinion."
