Weak exports, 'smokestack Poland' hit current account
Though January's current account deficit came in at $1.206 billion, a notch lower than some were expecting, analysts still believe export activity will have to pickup drastically before the account finds itself in a healthier state.
"It's taking more time than expected for the newer industries, where all of the investment is going to pickup the slack (for the old)," said Citibank's (Poland) head of economic research, Pierre Bergeron. "Clearly some of the old 'smokestack Poland,' if you will, is having a hell of a hard time."
Released Wednesday by the National Bank of Poland (NBP), January's account deficit was an improvement over December's $1.64 billion, but was significantly worse than the $894 million seen at the same time last year. The current account deficit widened to 7.6% of gross domestic product (GDP) last year, from 4.4% in 1998. It now encompasses 7.8% of GDP.
The only recent figures showing improvement, he said, were the Polish Foreign Investment Agency's (PAIZ) data measuring foreign direct investment (FDI). PAIZ's data shows January FDI at $766 million, a slight improvement over December. But, noted Bergeron, "It ain't coming from exports."
Exports were down 9% in January from a year ago with $1.998 billion changing hands. In the same period imports increased 1.7% and saw purchases worth $3.3866 billion.
Marcin Mroz, an economist with brokerage house Wood & Co., said his firm is worried about the current export market, which is seeing the lowest levels of activity since 1997. With an economy being driven by domestic demand, the "lack of an effective tool" to curb imports and relatively low investment, Mroz said, the export market may lag behind for a while.
Suggestions the economist had for reducing imports include high-interest deposits with the central bank, which could promote savings over consumption, and requiring import companies to place deposits in non-interest-bearing accounts.
These would be relatively quick fixes, he said, mentioning that any longer-term, export-supporting approaches must come from the government. However, said Mroz, "I think the drop in exports was not so substantial as to explain the whole drop in industrial output."
Industrial production in January fell 19% compared to December 1999.
One contributing factor might be that Poland's exports are "less advanced" than those offered by its neighbors, Mroz said. He quoted Wood & Co. studies showing that Poland's exports consist of 29% machinery and transport equipment, compared with 43% in the Czech Republic and 50% in Hungary.
Poland is more vulnerable to crises such as the one experienced in Russia last year, Mroz said, because the raw materials and less-sophisticated goods it exports are more vulnerable to currency and market fluctuations.
The same Wood & Co. data shows that Polish exports make up roughly 20% of GDP, whereas in the Czech Republic and Hungary exports account for 47.8% and 43.5% of their respective GDPs.
The economy will continue to grow, however, said Citibank's Bergeron. Citibank estimates GDP will grow 4.7% in 2000, approximately 2% coming from FDI and the remainder from consumer demand.
Mroz said Wood & Co. is focusing on a 4.8% GDP growth figure and expects the current account deficit to expand to 8% of GDP.
Hungary, he said, saw an account deficit of 4.28% of GDP in 1999 compared to Poland's 7.6%.
