In March industrial and retail sales were slightly lower than expected but this was largely due to seasonal and one-time factors. Production was relatively strong but inflation increased. It is expected that growth in consumer prices will start slowing after the 3rd quarter. The current account position and developments in foreign trade in goods were favourable. On the labour market, employment and wages were still growing fast while unemployment was on the decrease. The implementation of the budget revenue plan was more advanced than the implementation of the expenditure plan.
The current economic situation can be summarised by the following:
- In the 1st quarter the economic outlook was generally favourable but in March the increase in industrial and retail sales was lower than projected. However, growth in the construction and assembly output in March was at a level similar to that recorded in January and February.
- The relatively strong production growth in the 1st quarter of 2008 was coupled with an increase in consumer prices. In March CPI inflation remained at February’s level. In April-August consumer prices are expected to grow but will start decelerating gradually since September. Part of the effect will be due to the high reference levels of last year (high inflation figures in the same period of last year).
- The current account position and developments in foreign trade in goods were favourable. According to January and February 2008 data on foreign trade and balance of payments, published by the Central Statistical Office (GUS) and National Bank of Poland (NBP) in the second half of April, receipts from exports were relatively high and payments for imports were even higher. The current account deficit is gradually rising but is still lower than in most other new member states.
- Rapid changes are taking place on the labour market. Wages and employment are growing fast and unemployment is on the decrease. Poland is no longer an EU country with the highest unemployment rate. The improvement on the labour market means less money has to be spent from the Labour Fund for unemployment benefits. Reforms designed to increase labour productivity are needed to offset the increase in labour costs.
- Since the implementation of the budget revenue plan was more advanced than the implementation of the expenditure plan, a budget surplus was recorded. The budget deficit and Treasury debt at the end of the year are likely to be lower than the figures planned under the 2008 budget law.
Central Statistical Office (GUS): “(...) economic trends were predominantly favourable (...)”
GUS: In the 1st quarter of 2008 economic trends were predominantly favourable. As a result, the economic growth rate was still relatively high, though in March growth in some areas was somewhat slower than in the two previous months. In the 1st quarter growth in industrial sales was only slightly below the figure recorded in the 4th quarter of last year. Good conditions continued in the construction sector and a major part of the market services sector. The increase in retail sales was faster than in the second half of last year. Employment was on the rise, the number of unemployed and the unemployment rate were decreasing. Growth in nominal and real wages in the commercial sector was faster than in successive quarters of last year. The purchasing power of pensions was still lower than a year before. The inflationary pressure from prices of consumer goods and services and producer prices became stronger. (“Information on the Country’s Socio-Economic Situation, GUS, April 21, 2008”)
National Bank of Poland (NBP): "The Polish economy is still in a period of strong growth (...)”
NBP (Monetary Policy Council): The Polish economy is still in a period of strong growth encompassing all its sectors. However, data obtained since the Council’s last meeting suggest the risk of an economic slowdown in Poland, though it is difficult to assess now whether the deterioration of some macroeconomic indicators noted in March will persist in the next months. The latest statistics for the US economy confirm earlier signals suggesting that activity in this economy has slowed considerably. Additionally, there is continued uncertainty about the scale of slowdown in the euro-zone economy and its impact on the Polish economy. (...) The Council’s assessment is that the latest macroeconomic data suggest that in the first half of 2008 the economic growth rate will probably still be higher than the rate of growth in potential GDP. (“Report from the Monetary Policy Council Meeting on April 29 and 30, 2008”; www.nbp.pl)
PKO BP, Poland’s largest retail bank, has assessed the country’s economic situation after the 1st quarter of 2008.
PKO BP: We expect that in the 1st quarter the economic growth rate will decrease to 5.6-5.8% year on year (...), with relatively high domestic demand (...) stimulated by investment growth (...) and consumption (...) and with a higher negative contribution of net exports. (...) We expect that the growth rate for 2008 as a whole will decrease to 5.0-5.1 year on year and will be below 5.0-5.1% in the second half of the year. (...) We expect that in 2008 growth in private consumption will stay unchanged at a high level. A very strong contribution to private consumption will come from the fast growth in household incomes (...). Although the projected decrease in the GDP growth rate is quite sharp and amounts to 1.5 percentage points [difference between the growth rates in 2007 and 2008 – ed.], it is noteworthy that, compared to historical data, the rate of growth will stay at a very high level and will be much stronger than during the US recession in 2001. The following factors will be contributing to GDP growth, despite the unfavourable external environment: stronger foundations of the Polish economy in terms of domestic demand, a continued improvement on the labour market contributing to higher household incomes, the inflow of EU funds and foreign direct investment (despite the global economic slowdown, Poland is still a relatively attractive investment location), a growing share of exports to countries in the [CEE] region and Russia in Poland’s total exports (...). (“Macroeconomic Bulletin, PKO BP, 2nd quarter 2008”)
Assessments from other analytical centres and independent experts
Gdańsk Institute for Market Economics (IBnGR): The IBnGR has estimated that in the 1st quarter of 2008 the GDP grew by 5.8% year on year. (...) The key driver of growth in the 1st quarter was investment. (...) In the first three months of the year inflation accelerated significantly. In the year to March prices of consumer goods and services grew by 4.1% on average. At the end of March inflation was at 4.1%, 06 percentage points above the upper limit for deviation from the inflation target set by the Monetary Policy Council. Inflation accelerated as a result of a continued fast increase in wages, coupled with a rise in the number of jobs, and high energy prices. (IBnGR Report entitled “The State and Projection of Economic Conditions,” April 22, 2008; www.ibngr.edu.pl)
Tadeusz Chrościcki, independent expert: The 1st-quarter economic results indicate that the business cycle has already peaked, but the weakening of growth trends will not be as sharp as previously projected. I still believe that GDP may grow by almost 6% this year and stay above 5% in the next years because the level of investment is high, and its average annual growth will be in double figures, more than two times above GDP growth. As a result, the investment rate, i.e. the ratio of gross fixed capital formation to GDP, will reach a record level of around 30%. (...) One of the main priorities of macroeconomic policy in the near future is to reduce the fiscal imbalance. I expect that, despite the heavy burden of reforms on the budget (especially the pension and tax wedge reform) coupled with expenditure necessary to improve the country’s infrastructure, the ratio of general government debt to GDP will not be higher than 2.5% in 2010 and 1% in 2013. (See: Experts’ commentaries published on www.pte.pl. The commentaries of NRK experts have been published by the “Nasz Rynek Kapitałowy” monthly, no. 3/2007, no. 7-8/2007, no. 10/2007, no. 12/2007 and no. 3/2008. This quotation is from a commentary to be published in no. 6/2008 of the monthly)
Compared to other countries, the Polish economy is still growing at a relatively fast rate and inflation is still lower than in most new EU member states.
The upward trend in the construction output continued in the 1st quarter of 2008. Growth in industrial sales was weaker than expected.
In January and February 2008 growth in industrial sales was relatively high but in March industrial sales rose by a mere 0.9% year on year. In the electricity, gas and water supply sector, sales were higher by 10.1%, in the manufacturing sector sales were up by 0.4%. In the mining and quarrying sector, sales were down by 8%. On a seasonally adjusted basis, the increase in industrial sales reached 6.1% in March. In the 1st quarter industrial sales were up by 8.5% year on year.
In the January-March 2008 the fastest growth in sales was noted by enterprises producing mainly investment goods (around 17%) and consumer durables (15%).Sales of energy-related goods, supplies and consumer non-durables rose respectively by 8%, 5% and 4%.
Labour productivity in the industrial sector measured by sales per employee was by 4.7% higher than in January-March 2007, with employment higher by 3.6% and the average gross monthly wage up by 10.5%. In 2006 labour productivity rose by around 10% and in 2007 by 6%. Statistics for the 1st quarter of this year suggest that the rate of growth in labour productivity weakened. It is disquieting that wage growth is faster than growth in productivity as this may make Polish companies less competitive.
In March industrial sales in some industries were lower than last year but in the 1st quarter all sectors, apart from producers of chemicals and furniture, recorded growth in sales because January and February results were relatively good. The highest increases were recorded by industries based on relatively advanced technologies, like producers of medical and precision instruments, radio, television and telecommunications equipment, machines, motor vehicles, transport equipment, and metal and plastic products.
In sectors manufacturing high-technology products (in companies employing more than 49 people) sales were higher by 17.9% than in January-March 2007. The share of high-technology products in the total value of industrial sales accounted for 17.2%.
