Economic Monitor
Economic Monitor July 2014 Jan Mazurek, Business Centre Club (BCC) expert
Key economic trends It is 25 years since the beginning of Poland’s transition to a new political and economic system. And it is 10 years since Poland became a member of the European Union. Thanks to these developments Poland is now a modern, democratic and rapidly growing economy. Twenty five years passed in June since Poland’s first democratic elections, which triggered big economic and social changes in the country. In this period, Poland made an unprecedented progress in its development. In 1989, foundations were laid for systemic changes, giving rise to the construction of a democratic state of law and the development of a market economy. As a result, Poland became a country credible in the international arena and with a strong economy. For 10 years now Poland has been a member of the European Union. Over this period its GDP doubled to reach PLN1,635.7 billion in 2013. Last year, Poland’s per-capita GDP at purchasing power parity accounted for 68% of the EU average compared to 49% of the EU
average 10 years ago. Funding from the European Union was one of the most important factors behind Poland’s growth. It contributed 0.7 pct. points to this growth annually. Another important growth factor was the inflow of foreign capital. Since 2004 the cumulative value of foreign direct investment in Poland has reached an equivalent of PLN400 billion and two million jobs were created. Thanks to the free movement of goods, Polish businesses have been very successful on EU markets. Since 2004 they have exported PLN3.5 trillion worth of goods to the EU, generating a trade surplus of PLN100 billion. Thanks to opportunities offered by the freedom to provide services within the EU, Polish firms have delegated abroad around 230,000 workers annually. Revenue from service exports to the EU has reached PLN550 billion, with a surplus of PLN37 billion. EU funding
adjusted GDP in constant prices with 2005 as the reference year rose in real terms by 1.1% quarter on quarter and 3.5% year on year. The non-seasonally adjusted GDP in average annual prices of the previous year rose in real terms by 3.4% year on year. In May 2014, the HSBC PMI (Purchasing Managers Index) for the Polish manufacturing sector fell from 52.0 points to 50.8 points, according to a monthly survey conducted by Markit. May was the third successive month to see a drop in the index, which reached the lowest level in 11 months. New orders, production and employment had the biggest impact on the downward trend. New export orders dropped for the first time since May 2013. According to the surveyed managers the situation in Ukraine has had a negative influence on the Polish economy. In the five months to the end of May, the sit-
has contributed significantly to the acceleration of the pace of modernization. In 20042013, investment spending rose by 75%. Polish farmers received PLN53.7 billion in direct payments from the EU budget. And Polish people gained access to the labour markets of other member states. Poland was the only country in Europe to have avoided recession during the recent global crisis. In the first quarter of 2014, the seasonally
uation on the labour market improved significantly. The unemployment rate dropped by 1.5 pct. points. And the number of unemployed registered with employment agencies fell below 2 million. The Monetary Policy Council kept interest rates on hold. The key rate has remained at 2.5% since July 2013.
7/2014 :: Polish Market :: I
Economic Monitor
National budget
Government debt
Under the 2014 budget law, the budget deficit is planned at PLN47.5 billion. The budget deficit for the five months to the end of May accounted for 50% of the figure planned for the whole year.
At the end of April, central government debt was by 18% lower than at the end of last year. This resulted from the reform of the pension system.
According to the Ministry of Finance, in the five months to the end of May budget revenue amounted to PLN115.1 billion, which accounted for 41.4% of the amount planned for the full year. Revenue from taxes came to PLN105.9 billion, with PLN77.5 billion in indirect taxes, including VAT and excise tax, PLN11.1 billion in corporate income tax and PLN16.8 billion in personal income tax. The remainder was non-tax revenue, money from the European Union and other sources. Budget expenditure in January-May amounted to PLN137.6 billion, or 42.3% of the amount planned. The biggest expenditure item were general subsidies for local government units – PLN25.9 billion. The second biggest item – PLN17.2 billion – were subsidies for the Social Insurance Fund.
The budget deficit for January-May was PLN22.5 billion, or 47.3% of the amount planned for the full year 2014.
Source: Ministry of Finance
II :: Polish Market :: 7/2014
The redemption in February of the government bonds held by Open-ended Pension Funds (OFE) as part of the pension system reform resulted in a considerable reduction in central government debt. At the end of April 2014, government debt amounted to PLN741,200.3 million and was by PLN96.8 billion lower than at the end of last year. In the four months to the end of April, domestic debt fell from PLN594.3 billion to PLN477.9 billion while foreign debt rose from PLN254.8 billion to PLN263.3 billion. The share of foreign debt in overall debt rose from 30.3% at the end of last year to 35.5% in April.
Employment and wages Employment in the corporate sector remained unchanged in May, but average monthly wages decreased. In May 2014, the average number of people employed in businesses with over nine workers amounted to 5,514,700 and was at the same level as a month earlier and by 0.7% higher than a year earlier. In the
five months to the end of May, employment was higher by 0.4% than in the same period of last year.
The average gross monthly wage in the corporate sector, including profit-related bonuses, amounted in May to PLN3,878.31 and was by 2.5% lower than in the previous month but by 4.8% higher than a year before. In JanuaryMay 2014, wages were by 4.3% higher than in January-May 2013.
Prices In May 2014, prices decreased compared to the previous month. The consumer price index (CPI) fell to a level close to 0%. In May, prices of consumer goods and services dropped by 0.1% against the previous month. The largest negative contribution to the consumer price index came from prices of food, and goods and services related to recreation, culture and transport. At the same time, prices of goods and services related to health, and prices of alcoholic beverages and tobacco products went up. Food prices fell by 0.5%, with the biggest drops in prices of vegetables and sugar – by 6.7% and 2.1%. Prices of fruit increased by 2.0%, flour by 1.6%, oil and fats by 0.6%, and milk-based beverages and other milk products by 0.4%. Meat prices went up by 0.3%. Footwear prices grew by 0.6% while prices of clothes fell by 0.4%. Prices of goods and services associated with housing remained unchanged from April. Healthcare prices went up by 0.4% and there was a seasonal rise in prices of sanatorium services (up by 22.2%). Transport prices were lower by 0.4% than in April and communications prices were lower by 0.1%. Prices of goods and services associated with recreation and culture dropped by 0.6%. Newspapers and periodicals were cheaper by 2.4% and audio-visual, photographic and IT equipment by 0.6%. Accommodation services dropped by 1.1%.
Economic Monitor
Industrial, and construction and assembly output This year the situation in the Polish industrial sector is much better than a year earlier. The construction and assembly sector has also seen great improvement.
Source: Central Statistical Office (GUS)
According to the Central Statistical Office (GUS), in May 2014 industrial output in constant prices generated by businesses employing more than nine people was by 4.4% higher in year-on-year terms and by 1.7% lower than in April. After seasonal adjustments, industrial output was by 2.7% higher than in May 2013 and by 1.5% lower compared to the previous month. Compared to May last year, output grew in 27 of the 34 industrial sectors, with the highest increase recorded in the production of furniture (up by 18.3%), wood, cork, straw and wicker products (13.7%), machines and equipment (13.2%), metals (12.2%), metal products (11.6%), computers, electronic and optical products (11.6%), and rubber and plastic products (9.1%). Output dropped the most in coal mining (down by 13.3%), the production of chemicals and chemical products (8.1%), beverages (7.3%), and coke and petroleum products (4.2%). In the five months to the end of May, industrial output was by 4.7% higher compared to the same period last year. Compared to the average annual output in 2010, industrial production in May this year was higher by 12.4%. In May, producer prices were lower by 0.2% compared to the previous month. The biggest drops were recorded by businesses involved in the production of motor vehicles, trailers and semitrailers and the production of chemicals and chemical products (by 0.6% each), in printing and reproduction of recorded media (by 0.5% each), the production of metals, furniture, leather and leather products (by 0.4% each). In manufacturing, prices went down by 0.2%. In contrast, prices rose in water supply, sewerage, waste management and remediation activities (up by 0.1%), and in mining and quarrying (up by 0.5%), with a 3.0% increase in metal ore mining. Compared to a year earlier, producer prices in May were lower by 1.0%. Prices dropped the most in mining and quarrying (down by
7/2014 :: Polish Market :: III
Economic Monitor
in output by 23.1%, those dealing with infrastructure building by 9.5% and those specialized in the construction of buildings by 2.4%. In month-on-month terms, output also increased in all segments of construction – by 21.9% in businesses involved in infrastructure building, 14.4% in those dealing with specialized construction work and 7.2% in those specialized mainly in the construction of buildings. In January-May 2014, construction and assembly output was by 11.3% higher than a year before, but compared to the average annual output in 2010 it was lower by 7.0%.In May, construction and assembly prices remained unchanged from April, but were lower by 1.4% than in May 2013.
Residential building The number of homes completed in the five months to the end of May 2014 was lower than a year earlier. But the number of home starts and building permits issued was much higher.
Source: Central Statistical Office (GUS)
6.3%). In manufacturing, prices went down by 1.0%. Prices increased in water supply, sewerage, waste management and remediation activities (up by 0.7%) and in the supply of electricity, gas, steam and hot water (1.0%). Construction and assembly output, both new work and repair work, generated in Poland in May by construction firms employing more than nine people was higher by IV :: Polish Market :: 7/2014
10.0% in year-on-year terms and by 14.0% than a month earlier. After seasonal adjustments construction and assembly output was higher by 8.3% than in May 2013 and by 3.9% lower than in the preceding month. Compared to May 2013, output was higher in all segments of the construction industry. Businesses involved mainly in specialized construction work recorded an increase
The number of homes completed in May 2014 amounted to 8,941 and was lower by 7.9% than a year earlier. In the five months to the end of May the number of completions was 55,766, or by 3.0% higher than in JanuaryMay 2013. The number of homes started in the first five months of 2014 amounted to 58,722, up by 23.8% compared to the corresponding period last year, while the number of home permits rose by 14.9% to 61,855.Self-build homes made the largest contribution to the newly completed homes – 57.1%. The number of self-build home completions amounted to 31,858 which represented a decrease of 6.4% compared to a year earlier. However, the number of home starts in this group went up by 6.3% to 30,926 while the number of home permits went down by 0.7% to 29,491. Developers, who had a 38.2% share in the residential market, completed 21,306 homes, or 0.9% more than a year earlier. Compared to January-May 2013, the number of homes started by developers went up by 52.1% to 26,071 while the number of home permits rose by 44.6% to 30,696. Housing associations completed 1,251 homes – by 17.4% less than a year before. They started the construction of 448 homes, down by 29.8% compared to a year earlier, and received building permits for the construction
Economic Monitor
Labour market May saw an improvement in the situation on the labour market. The number of unemployed registered with employment agencies fell below 2 million.
According to preliminary estimates published by the Ministry of Labour and Social Policy, the registered unemployment rate stood in May at 12.5% and was by 0.5 pct. points lower than a month earlier. In May 2013, the unemployment rate amounted to 13.5%. The number of unemployed dropped in May this year by 86,000 in month-onmonth terms. Since the beginning of the year more than 260,000 people were crossed off from the registers kept by employment agencies. As a result, over 1.93 million people, or 183,000 less than a year earlier, were registered as unemployed at the end of May. Seasonal factors – the opening of seasonal jobs in agriculture, construction, and the tourist and food services sector - contributed the most to the drop in the number of unemployed. Additionally, more and more Poles are leaving Poland to take up jobs in other countries, like for example Germany, where the unemployment rate is much lower than in Poland. Back-to-work programmes are also contributing to a drop in of 475 homes, by 6.1% less than a year earlier. Investors in the sector of council homes, affordable rental homes and homes owned by workplaces completed 1,351 homes, or 62.4% more than a year before. The number of home starts increased by 129.7% to 1,277 while the number of permits dropped by 50.3% to 1,193. In January-May 2014, a year-on-year drop in the number of home completions was recorded in nine provinces, with the sharpest decrease in Lubelskie (down by 21.9%), Pomorskie (20.0%) and Dolnośląskie (14.6%). In the remaining seven provinces the number of home completions was higher than a year earlier, with the biggest increases in Świętokrzyskie (up by 21.6%), Opolskie (16.5%) and Podlaskie (14.4%). The number of home starts went up in 11 provinces, with the biggest increases in Wielkopolskie (up by 72.6%), Mazowieckie (54.1%) and Dolnośląskie (49.4%). The number of home starts dropped in Zachodniopomorskie (down by 17.7%), Świętokrzyskie (12.6%), Małopolskie (8.8%) and Kujawsko-Pomorskie (5.9%). In 10 provinces the number of home permits
Source: Central Statistical Office (GUS)
went up, with the sharpest increases in Pomorskie (up by 74.3%), Lubuskie (43.7%) and Mazowieckie (33.4%). In six provinces the number of home permits decreased, with the biggest drops in Świętokrzyskie (down by 35.0%), Podlaskie (26.5%) and Małopolskie (15.8%).
unemployment. This year, PLN5 billion is to be spent on these programmes. In May the unemployment rate dropped in all provinces, the most in WarmińskoMazurskie (down by 1 pct. point). The lowest unemployment rate was in Wielkopolskie (8.7%).
7/2014 :: Polish Market :: V
Economic Monitor
Source: Central Statistical Office (GUS)
Foreign trade Poland’s trade figures have been increasingly strong, with a widening trade surplus.
In the four months to the end of April, the overall value of Polish exports in current prices amounted to PLN223,297.3 million and was higher by 7.7% compared to April 2013. The value was equivalent to USD73,417.7 million, or EUR53,428.7 million. Exports were higher by 10.7% if expressed in the dollar and by 6.6% if expressed in the euro. The share of developed countries in Poland’s overall exports was 83.8%, with exports to the European Union accounting for 76.8% of the total. Exports to the eurozone accounted for 53.8%. The value of imports in current prices amounted to around PLN220,320.7 million and was higher by 4.4% than a year earlier. The value of imports in dollar terms was USD72,422.9 million, up by 7.2%, and in euro terms it was EUR52,722.3 million, up by 3.3%. Consequently, Poland recorded a positive trade balance of PLN2,976.6 million (USD994.8 million or EUR706.4 million). A year earlier, the trade balance had been negative at PLN3,767.3 million. Developed countries had a 64.9% share in Poland’s overall imports, with imports from the European Union accounting for 58.4% of the total. Imports from the eurozone accounted for 45.9%.
VI :: Polish Market :: 7/2014
Poland had a surplus of PLN44,301.1 million in its trade with developed countries. The surplus in trade with European Union countries amounted to PLN42,893.6 million (EUR10,261.5 million). The surplus in trade with eurozone countries was PLN19,083.7 million (EUR4,565.million). Deficits were recorded in Poland’s trade with developing countries and Central and Eastern European countries of respectively
Source: National Bank of Poland (NBP)
PLN27,699.4 million and PLN13,625.1 million). The share of exports to countries which are Poland’s 10 largest trading partners accounted for 65.5% of Poland’s overall exports while the share of imports to these countries accounted for 67.1% of Poland’s overall imports. Poland’s largest trading partners in exports were Germany, the United Kingdom, the Czech Republic, France, Italy, Russia, the Netherlands, Sweden, Hungary and Slovakia. Germany had an around 26.3% share in Polish exports. As regards imports, Poland’s 10 largest partners were Germany, Russia, China, Italy, France, the Netherlands, the Czech Republic, the United Kingdom, Belgium, and the United States. Germany had the largest share in Polish imports – 21.7%, followed by Russia with 12.0%.
Economic Monitor
Money supply May saw a rise in money supply, but household deposits remained unchanged. According to preliminary data published by the National Bank of Poland (NBP), the M3 money supply expanded in May by PLN5.8 billion, or by 0.6%, in month-on-month terms to PLN992 billion. Compared to May 2013, the money supply grew by PLN50 billion.
At the end of May 2014 cash money in circulation was worth PLN119.7 billion and was by 0.3% higher than at the end of April and by 9.5% higher than a year earlier. Deposits and other obligations stood in May at PLN856.4 billion and their value was by 0.7% higher than a month earlier and by 5.6% higher than in May 2013. The value of household deposits was PLN559.4 billion slightly below the previous month’s level and by 6.2% higher than a year before. At the end of May 2014, corporate deposits in bank accounts were worth PLN195.6 billion and were higher by 1.8% than a month before and by 4.5% than a year before. The combined deposits of non-monetary financial institutions, non-commercial institutions operating for households, local government institutions and social insurance funds were worth PLN101.3 billion at the end of May and were higher by 2.6% than in April, and by 4.7% in year-on-year terms. The remaining M3 components amounted to PLN15.9 billion and were by 2.7% lower compared to a month earlier and by 26.5% lower than a year earlier. Net domestic assets were worth in May PLN866.8 billion and were by 0.9% higher than a month earlier and by 13.2% higher year on year. Poland’s foreign assets stood at PLN125.2 billion and were lower by 1.4% than a month earlier and by 29.0% than a year earlier. Household debt, debt of non-monetary financial institutions, businesses, non-commercial institutions operating for households, local government institutions and social insurance funds amounted to PLN964.7 billion and were by 0.2% higher than in the previous month and by 5.4% higher compared to a year earlier. In May, household debt stood at PLN574.7 billion and was higher by 0.2% than a month earlier and by 4.7% compared to a year earlier.
Corporate debt amounted to PLN289.7 billion and was higher by 0.8% than in April and by 6.5% than in May 2013. The debt of local government institutions amounted to PLN50.5 billion and was by 0.3% lower than in the preceding month and by 1.4% higher than in May 2013. The debt of central government institutions amounted to PLN142.4 billion and was by 9.0% lower than in April and by 17.4% higher than a year earlier.
Balance of payments In April, Poland posted a surplus on the current account, which was largely due to a trade surplus.
According to the National Bank of Poland (NBP), in April 2014 there was a surplus on the current account of EUR1,028 million versus a surplus of EUR517 million a year earlier. There was a surplus on the balance of trade of EUR856 million, balance of current transfers (EUR800 million) and balance of services (EUR601 million), and a deficit on the balance of income (EUR1,229 million). A year earlier, the current account balance had also been positive - at
EUR569 million. The combined current account and capital account balance was positive in April at EUR1,260 million. Goods exports were worth EUR14,207 million and goods imports EUR13,351 million. Compared to April 2013, the value of goods exports was higher by EUR904 million, or 6.8%, and the value of goods imports was higher by EUR678 million, or 5.4%. The surplus of goods trade rose by EUR226 million year-on-year to EUR856 million. The revenue from services amounted to EUR2,661 million and was by 1.4%, or EUR36 million higher than a year earlier. The expenditure amounted to EUR2,060 million. Consequently, the surplus on the balance of services reached EUR601 million, with a surplus on the balance of transport services (EUR393 million) and the balance of foreign travel (EUR212 million), and a deficit on the balance of the remaining services (EUR4 million). The balance of income was negative at EUR1,229 million. A year earlier, it had also been negative at EUR1,483 million. In April, Poland received EUR1,026 million from the European Union, mainly under the Common Agricultural Policy, and in current and capital transfers. At the same time, Poland contributed EUR343
7/2014 :: Polish Market :: VII
Economic Monitor
million to the EU budget. Consequently, the balance of transfers between Poland and the EU was positive at EUR974 million. The financial account balance was negative at EUR978 million, meaning an outflow of capital from Poland. Non-residents’ investments in Poland shrank by EUR440 million net. At the same time, residents increased their net foreign liabilities by EUR538 million. The balance of foreign direct investment in Poland was negative at EUR989 million, with reinvested profits worth EUR109 million) and a net inflow of money in the form of debt securities (EUR237 million). Portfolio investment by nonresidents in equities decreased in April, with an increase in liabilities by EUR802 million. At the same time, there was an outflow of capital invested in debt securities, mainly those issued by the government sector (EUR233 million). The balance of other investment by non-residents in Poland was negative at EUR20 million, which resulted mainly from a drop by EUR554 million in obligations of other sectors. The obligations of the government sector and of the central bank (NBP) also decreased – by EUR215 million and EUR50 million respectively. At the same time, the liabilities of the banking sector rose by EUR799 million. The balance of foreign investment by Polish residents was negative at EUR523 million. The value of foreign assets held by Polish residents in the form of portfolio investment abroad went up by EUR586 million and other investment by EUR169 million. The value of assets in the form of direct investment dropped by EUR232 million. Reserves decreased by EUR574 million due to transactions carried out by the National Bank of Poland (NBP), including transactions for its clients. At the end of April, Poland’s official reserves were equivalent to EUR74,274 million.
Capital market May saw no significant changes to the main indexes of the Warsaw Stock Exchange. There was great interest from issuers in the non-government bond market. VIII :: Polish Market :: 7/2014
One company debuted in May on the main market of the Warsaw Stock Exchange (WSE). It was transferred from the alternative NewConnect market. At the end of May, there were 408 domestic companies listed on the main market, with a total capitalization of PLN611.0 billion, and 48
a combined capitalization of PLN10.03 billion. The total turnover on this market reached PLN74.06 million in May and PLN453.7 million since the beginning of the year. The NCIndex dropped by 3.87% in May and by 8.28% since the beginning of the year. Fifteen bond issuers debut-
Source: Warsaw Stock Exchange
foreign companies worth PLN303.5 billion. The value of equities traded on the main market in May was PLN16.3 billion, and was similar to the level of a year earlier. The average price/earnings ratio for equities in the WIG broad-market index was 20.5. In May, the WIG30 blue-chip index gained 0.31% and the WIG broad-market index increased by 0.34%. Since the beginning of the year the indexes gained 2.39% and 1.53% respectively. Five of the 11 sectoral indices rose in the five months to the end of May. WIG-Energia (WIG-Energy) gained the most (23.4%) while WIG-Spożywczy (WIG-Food) lost the most – 17.3%. The fall of the latter index was mainly due to a drop in the value of the Ukrainian company Kernel. Two companies debuted in May on the NewConnect alternative market. At the end of the month, there were 438 companies listed on that market and they had
ed on the market in May. Debt securities (bonds, including covered bonds) issued by 185 non-state issuers - businesses, banks and local government units – were listed on the Catalyst market at the end of May. The securities had a combined nominal value of PLN64.6 billion, which represented an increase by almost 18%. The value of turnover fell by 57.5% to PLN136.6 million. ::