UPDATE 1-Polish zloty fall unjustified, growth to slow-cbanker

Poland's economic fundamentals do not justify the zloty's recent depreciation, although growth in 2009 could be less than 2.8 percent, the central bank governor said on Friday.

'As far as the current situation is concerned, fundamentals show that the depreciation (of the zloty) is not justified. I'm confident about the future of our currency,' Slawomir Skrzypek told reporters.
But Skrzypek, who has been a leading dove on the central bank's rate-setting council, warned of a significant economic slowdown next year.

'There are a number of risks that (the economic growth rate in 2009) could be lower than showed in the October projection (2.8 percent),' Skrzypek said.

The government expects the European Union's largest ex-communist economy to grow by 3.7 percent next year, but analysts have slashed forecasts due to a deepening recession in the euro zone and global doom that should weigh on exports.

Source:By Marcin Goclowski, Karolina Slowikowska, Chris Borowski
forbes.com

Fitch sees Poland 2008 growth easing to 5.2 pct-paper

WARSAW, Aug 27 (Reuters) - Poland's economic growth is expected to slow to 5.2 percent this year and to 4.6 percent in 2009, due to a slowdown in Europe, Fitch Ratings Agency's analyst David Heslam was quoted as saying.
On other hand Poland's growth will be supported by strong domestic demand, low unemployment, and a healthy labour market, Heslam said.
"We have revised our forecast for Poland's growth to 5.2 percent in 2008 and 4.6 percent in 2009," Heslam told Rzeczpospolita daily.
Ex-communist central Europe's largest economy expanded by 6.6 percent in 2007 but market analysts expect the growth will slow to 5.3 percent in 2008. The finance ministry has forecast an expansion of 5.5 percent.

Source: By Patryk Wasilewski,Kim Coghill
guardian.co.uk

Work in progress

The Polish government has a long way to go to get the economy in shape

HIGH hopes, fine words and modest results. That is the story so far of Poland's newish centre-right government, in office since November, as it tries to sort out the country's deep-rooted economic problems in the face of a global slowdown. The previous government, an oddball coalition, frittered away the chances offered by rapid GDP growth (6.5% in 2007) to restructure public finances. Although strong growth in investment and consumption means that the economy is still looking good, competitiveness is suffering as wages grow faster than productivity and the currency appreciates.

The British-born finance minister, Jacek Rostowski, has ambitious-sounding plans to cut the budget deficit until it reaches 1% of GDP in 2011, thus shrinking public debt and preparing for possible entry into the euro area in 2012. But he needs convincing details to match his bold aims. At least Poland is now explicitly aiming to join the euro; the previous government's approach was “wait and see”. Personal income tax will be lower and flatter next year; other taxes will come down too. An economist who follows Poland closely says that the policy goals are “well thought out”, but adds that most reforms are still plans, often vague ones, not reality.

The urgent need is to raise productivity by liberalising the labour market, privatising state-owned enterprises and cutting red tape. Poland's bureaucracy has won a shaming 74th place in a World Bank ranking, behind even Bulgaria and Romania, the EU's newest and poorest members. A parliamentary committee is to examine superfluous regulation. Though little has changed so far, Henryka Bochniarz, head of the private employers' body, praises the government's “real determination” .

The prime minister, Donald Tusk, seems to lack grit. He has caved in to demands for higher wages by border guards and doctors; now the nurses are clamorous. The numbers of public employees able to retire in their 50s have only been shaved. Poland's labour-force participation rate is dire, at around 54%, ten points below the EU average. The government has pledged to boost legal employment by making it easier to set up a business. But it is still far easier in Britain, notes a Polish-based British businessman.

The government flinches at unpopular spending cuts, reflecting feelings in a reform-weary population. The president, Lech Kaczynski, is the twin brother of the former prime minister. He has an eye on re-election in 2010 and he wields a veto over new laws. Without costly deals with the opposition, Mr Tusk lacks the parliamentary majority to overrule him.

Bad relations between prime minister and president have spilled into a row about the central bank, one of the few public institutions trusted by most Poles. The bank's governor is an old friend of Mr Kaczynski's who supports the previous government's doveish monetary policy. That has alarmed inflation hawks (including the former governor) and caused conflict with the bank committee that sets interest rates. In January both deputy governors resigned. One, Krzysztof Rybinski, says that the dispute-ridden atmosphere at the bank has been “demotivating” for all the staff. Mr Tusk has so far refused to approve one of the governor's nominees as deputy. As inflation accelerates past 4%, the uncertainty matters. Higher prices mean higher public-sector wages, further undermining the planned fiscal tightening.

The new Polish government's heart may be in the right place. But it will need more than that if it is to put new Europe's largest economy on track.

source: economist.com

The Polish Economy: An Unlimited Need For People?

The gentleman in the photo is Konrad Jaskola, Chief Executive Officer of Polimex-Mostostal SA, Poland's biggest construction company, and according to this article in Bloomberg, he has just one message for us all: "I have an unlimited need for people".


The issue arising is that Joskola has plans to hire "several thousand" new workers next year to meet demand for new bridges and factories, but he has a problem, and the problem is that due to Poland's growing labour shortages he may have difficulty finding them. Poland's economy has been growing strongly in recent quarters, although not as strongly, it should be noted, in some of the more evidently "overheating" economies like the Baltics. Poland's economy expanded an annual 6.4 percent in the third quarter of 2007, following 6.7 percent growth in the second quarter and 6.8 percent in the first one, according to data released by the Warsaw-based Central Statistical Office at the end of November.





This strong growth rate is partly fueled by construction activity and partly by strong consumer demand for retail items like cars and washing machines. Construction in Poland rose 20 percent in the first nine months of 2007, and as can be seen in the chart below - which offers a breakdown of Polish GDP growth by components, construction has been playing a very important part in the process. The thing is, however, that construction activity is pretty labour intensive.





According to Joskola, Polimex needs to offer higher salaries across the board, to engineers and managers, and to on-the-ground site workers, as Poland's skilled workers steadily move abroad (like all that hedge fund money which is flowing in the opposite direction) in search of higher yield. As a result local competition for workers increases, and wages start strong upward climb. Polimex has raised wages by 11 percent over the last 12 months and plans to raise them them by a further 10 percent next year.


The company, which is a "recycled" formerly state-owned machinery supplier, established to drive Poland's post-World War II reconstruction effort, currently plans to spend as much as 200 million zloty on acquisitions next year, in order to add workers and production capacity. I imagine some, at least, of those acquisitions will have to be of workers coming from outside Poland.

Inflation On An Upward Path

Meantime Polish inflation accelerated to the upper end of central bank's target range in November on the back of higher food and oil prices, meaning policy makers at the central bank may be forced to raise interest rates again in the coming months, in so doing possibly pushing up the value of the zloty, and attracting even more funds in search of even more workers to put to work.

Polish inflation rate rose to 3.6 an annual percent in November from 3 percent in October, the Central Statistical Office reported today in Warsaw. Consumer prices gained a monthly 0.7 percent after rising 0.6 percent in the previous month. Food prices grew an annual 7.2 percent 1.3 percent from the previous month, while fuel prices soared 13.2 percent from November 2006 and 2.5 percent from last month




As Unemployment Continues To Fall

The unemployment rate fell for the ninth consecutive month in October to 11.3 percent from 11.6 percent in September, the office said in a separate report today. Earlier this month, the office said that average corporate wages advanced an annual 11 percent in October and employment grew a record 5 percent from the year before.



And Wages Continue To Rise



As I say, inflation in Poland is also being fed by a 10 percent average wage growth and record low unemployment this year. In fact Polish average corporate wages advanced in November at the fastest pace in more than seven years, suggesting that the very rapid economic growth and large scale out-migration of key age group workers may be squeezing the labour market more than people imagined, thus provoking the sharp rise in inflation. Wages rose at an annual 12 percent rate (and 4.8 percent from a month earlier) to 3,092.01 zloty, according to the Warsaw-based Central Statistical Office earlier this week.




While Remittances Continue to Flow in Strongly

Remittances from abroad, mostly by taking advantage of free movement of labor within the European Union, are currently estimated (by the Polish National Bank) to be worth almost 2.5% of the gross domestic product of 250 billion euros. Since the United Kingdom opened its labor market to Poles three years ago, at least half a million Poles have settled in Britain.

Marcin Korolec, under-secretary at Poland's ministry of economics is quoted as saying that "the statistics show that the transfer from Polish people working abroad is something like 6 billion euros a year....Obviously this is a huge amount of capital, a huge amount of flow. It has an impact on internal consumption and internal growth."




All of Which Produces A Rapid Rise in Sales

Polish October retail continued their rapid rate of annual increase adding to evidence that economic growth remains strong despite four interest rate increases from the Central Bank so far this year. Retail sales rose an inflation corrected 16.3% in October over October 2006, this was up from a 12.2% rise in September compared with 14.2 percent in September, according to the Warsaw-based statistics office today.





The growth which is driven by sales of vehicles (which rose 42% year on year) and sales furniture and household appliances (a 21.9% annual rate of increase) - confirms the impression that consumer demand is being bolstered by falling unemployment, which dipped to an 8 1/2-year low, higher wages, which last rose the most in seven years last month, and a steady and economically significant inward flow of remittances.


Monetary Policy in A Bind?


The central bank lifted the seven-day reference rate a quarter-point to 5 percent only last month, and this was the fourth increase since April, when the key rate was 4 percent. So as we can see, at this point of time , and against all traditional expectation, monetary tightening may actually be having the perverse effect of accelerating the economy.



At the same time the zloty continues its rise, trading at 3.58 to the euro after the release of this weeks wages data, holding near its highest in five and a half years.


So as the Monetary Council begins its 2 day meeting for December today, we can see that there are some difficult decisions to take. Members of the council have already made public some of their divergences, with policy maker Marian Noga having taken the view that "The sooner we have the hike, the better, as preventive action is cheaper than boosting rates to chase down inflation", while Council member Miroslaw Pietrewicz takes the view that Poland's central bank should delay raising the benchmark interest rate until policy makers have had time to assess whether the four increases already made so far this year have been sufficient to bring inflation into check in the mid term.

What this dispute is a reflection of are the serious issues which arise concerning the actual ability of conventional monetary policy to work in a situation like the one facing Poland, since raising interest rates may just as easily stoke up more inflation - as we have seen in Australia and New Zealand, and to some extent in China - by attracting more investment funds into the country. This issue became apparent when the zloty also gained after a central-bank policy maker Marian Noga said the interest rate may have to rise as much as three-quarters of a percentage point before the end of 2008 to ward off inflation. Normally, an impending rise in inflation and a monetary tightening process (which reduces growth) would be considered to weaken and not strengthen a currency. So what happens next? Well this is just what we don't know, since we have never been here before. Clearly these economies will continue accelerating till the day they can't. And after that, well we will have to wait till we get there to actually see. What is happening in Hungary may give us some clues, and what happens next in the Baltics will definitely provide another of the missing links. Meantime we are in "wait and see" mode I feel. And behind Poland, roaring down the track come Russia and Ukraine, remember.
Source: polandeconomy.blogspot.com