June industrial output points to rise in exports
The economic dark cloud of the current-account deficit appeared less ominous last week as June industrial output figures continued their upward climb and inflation rose only slightly.
"Poland is coming out of its fear over the current account," said an economist with Goldman Sachs (London) who covers Central and Eastern European economies. One reason for that, said Dariusz Filar, Bank Pekao's chief economist, is increased industrial output fueled by external demand.
June output was up 1.3% from May and 13.5% from June 1999. Given other recent data showing lower internal demand, he said, "the only explanation is that (industrial output) is due to external demand, which means it is driven by exports." That also means the current account gap of which one of the key components is the trade balance could be on the way down for good.
Data released Wednesday by the Central Statistical Office (GUS) showed exports in the first five months of 2000 up 12.3% from the same period last year while imports were up 9.8%. In addition, all 29 components of the industrial output breakdown showed growth, Filar said. While production grew, so did the prices that producers paid suppliers.
The producer price index (PPI) for June was up 8.8% from the previous year and 0.9% from May. "When you have a dynamic growth of production, some growth of PPI is acceptable," Filar said.
However, according to Marcin Mroz, a Wood & Co. economist, "growing PPI suggests that there are still strong pressures in the economy."
Price growth continued in the consumer price index (CPI) as well, pushing inflation up to 10.2% year on year against May's 10.0%. Grain prices were up an annual 8.5% in June and petrol prices 7.8%. "These are the two most important driving forces of inflation at the moment," Filar said. In addition, sugar prices were up an annual 5.5% while flour was up 4.3%. In monthly terms, food prices as a whole were up 0.6% from May.
Wood & Co. predicts inflation should stay above 10% for the next few months before declining in the last quarter of the year and finishing at an annual 8.1% in December, a percentage point higher than earlier forecasts. The government's official target for December inflation is 5.4-6.8%. Bank Pekao forecasts 7.6%.
Much discussion of late, especially in connection with central bank statements, has focused on a possibility of further interest rate increases in August from the already sky-high rates of 17-21%.
"I do not think that the further growth (of interest rates) will have any positive results for the economy," Mroz said. "Even (the Monetary Policy Council) admits that there is a slowdown in domestic demand." Even if interest rates remain at current levels, Mroz said, the real cost of money the difference between inflation and interest rates will continue to grow and push down domestic demand.
The overriding task now, he said, is for the government to maintain fiscal control through a tight 2001 budget.
