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New Europe Weekly

Polish economy has held up surprisingly well

Fri, Aug 21 2009, 15:12 GMT
by Lars Rasmussen

Danske Bank A/S  |  View company's profile

During the global economic crisis Poland has been one of the only European Union member states which has not experienced negative year-on-year growth. We do not expect this to have changed during Q2 09 (even though it will be close) and forecast GDP growth of 0.3% y/y (consensus is 0.5%) compared to 0.8% y/y in Q1 09.

The Polish economy held up better-than-expected in Q4 08 and Q1 09 as the country entered the crisis with high growth. Meanwhile neighbouring countries experienced significant economic contraction mostly notable in the highly imbalanced economies. Poland was less imbalanced going into this crisis, although the boom over the last couple of years had created some bubbles and an overvalued currency.

Despite stronger-than-expected performance, the Polish economy has faced a sharp slowdown as capital flows dried up, manufacturing was hit and the currency and most asset classes dropped sharply bringing negative wealth effects. Labour market conditions worsened and unemployment is likely to rise well into 2010. Polish real retail sales dropped rather sharply (-3.5% y/y in Q1). At the same time overall private consumption has grown 3.3% y/y, which is a little puzzling. This increases the likelihood that Q1 09 numbers will be revised down when Q2 09 numbers are released next Friday.

The slowdown in the Polish economy looks to have stabilised in Q2 09 and we have seen a slight improvement in both industrial production and retail sales numbers in the recent months. Furthermore Germany has moved out of recession in Q2 09 (see comment). This is positive for the Polish economy as 25% of all Polish exports go to Germany – corresponding to 8% of GDP. Hence, we do not expect Q2 09 GDP numbers to be significantly weaker than Q1 09. In neighbouring countries like Hungary, Czech Republic and Romania, however, Q2 GDP numbers have all surprised on the downside and showed further economic contraction. (See comment).

In July, Euro Zone PMI and Polish PMI improved further and this week numbers on Polish wage growth and industrial production growth were above forecast. All positive for Polish economic growth. When we have received Q2 09 Polish GDP numbers we will publish an updated version of our Macro Monitor on Poland (Macro Monitor, July's edition), which contains an updated outlook on the Polish economy.

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Published on  Fri, Aug 21 2009, 15:22 GMT

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