Transcript Robust recovery under way - prospects for the polish economy

Prospects for the Polish economy
Lars Rasmussen
Analyst, New Europe Research
Danske Research, Danske Bank
+ 45 45 12 85 34 (direct)
+ 45 20 55 27 98 (mobile)
[email protected]
www.danskebank.com/danskeresearch
April 2008
Outlook for the Polish economy in coming three
years
•
Wage growth has accelerated sharply over the last couple of years after a prolonged period of high economic growth. This has
contributed to higher inflationary pressures and reduced competitiveness – see page 3
•
First signs of a slow down is becoming visible in data, but Poland will in general weather the global credit storm, due its strong
fundamentals. We however expect that growth has peaked in 2007, and that it under every circumstances will shift from fifth to
fourth gear during 2008-2010 as private demand eases somewhat. We however do not expect any major downturns, but we
see real GDP growth slowing from the current rates around 6% y/y to roughly 4.5%-5% y/y by year-end. Hereafter should GDP
expansion stabilise around 5% y/y in 2009-2010 – see page 4
•
A strong labour market continue to support private consumption, but tighter credit conditions, higher inflation and a peak in the
property market should gradually begin to weigh on private consumption and hence growth – see page 5 . Investment growth,
another key driver behind the economic expansion is getting close to a peak – construction activity is key – see page 6
•
Polish exports continue to be driven by especially strong German growth. However the expected slowdown in the German
economy will weigh on Polish exports – see page 7
•
Inflation has breached the official 2½% (+-1%) target zone driven by strong wage growth, but primarily the surge in food and
energy prices. We tough expect to see a peak in Q3 2008. Then inflation should start to decline below 3% y/y in the following
quarters, if food and energy prices stabilise – see page 8. Slower economic growth should also limit inflationary pressures in the
Polish economy. This could pave the way some monetary easing in 2009-2010, but do not expect to much, as the central bank
has proven fairly hawkish
•
We could see further appreciation of the polish zloty in Q2-Q3 2008, as higher rates and yields attract speculative capital flows,
and as the growth outlook in Poland looks fairly robust. Going in to 2009-2010 we believe that EUR/PLN will remain fairly stable
– see page 9 and 10
2
Wage growth continue to accelerate
10.0
% y/ y, 1 2 mcma
% y/ y, 1 2 mcma
Nom. wages
10.0
5.0
5.0
Real wages
0.0
Real wages, productivity adjusted
0.0
-5.0
-5.0
-10.0
-10.0
-15.0
01
Real wages, productivity adjusted
02
03
04
05
06
percent
Wage growth is now showing
clear signs of picking up and
should accelerate further in
during the rest of the year due to
a tighter labour market and rising
food and energy prices
percent
•
-15.0
07
The accelerating wage growth is
beginning to pose a potential
inflationary problem, and it will
have a limiting effect on longer
term growth prospects
900 EUR per month
Hungary
800
W ages in manufacturing sector
700
Poland
600
Czech Rep.
500
400
Russia
Estonia
300
Bulgaria
200
100
Ukraine
0
00
01
02
03
04
05
06
07
900
800
700
600
500
400
300
200
100
0
percent
•
percent
.../ figurbibliotek/
Source: Reuters EcoW in
3
First signs of growth slowing?
12 % y/ y
Industrial production
smoothed
10
•
But, the rising difference between GDP
growth and industrial production indicates
that net exports is contributing less to growth
•
Thus, deceleration in industrial production
growth may show some moderate signs of
slowing due to capacity constraints
•
We expect that the Polish GDP growth will
continue to slow below 6.0% y/y in the
coming quarters
•
Until now there have been very few signs of
slowdown in the Polish economy, but is
likely to change over the summer
10
8
6
6
<< Real GDP
2
percent
percent
Growth remains very strong– primarily
driven by strong investment growth
% y/ y 12
8
4
•
4
2
0
0
02
03
04
05
06
07
.
4
We are also worried that foreign currency
funding might come under pressures and
hit the Polish consumer
•
Tighter credit conditions and more
restrictive credit policies in the commercial
banks will – in combination with higher
inflation – weigh negatively on private
consumption in 2008
% y/ y
Retails sales, Poland,
current prices
02
03
04
05
06
35
30
25
20
15
10
5
0
-5
-10
-15
percent
•
35 % y/ y
30
25
20
15
10
5
0
-5
-10
-15
01
07
.
50000 New car sales, pr month
45000
50000
40000
40000
35000
35000
30000
30000
25000
25000
20000
20000
45000
15000
percent
Private consumption has accelerated
strongly. However, the savings ratio is
fairly low in Poland and that could pose a
long-term threat to private consumption
growth
percent
•
percent
Private consumption boom
15000
03
04
05
06
07
.
5
30 % y/ y
25
20
15
10
5
0
-5
-10
-15
99
00
% y/ y
Investments
01
02
03
04
05
06
30
25
20
15
10
5
0
-5
-10
-15
percent
percent
Investment growth close to a peak
•
Investment growth has accelerated
strongly since the beginning of 2002
•
The continued pick-up in demand, stronger
investor sentiment and EU membership
have boosted investment growth
•
That said, we are probably getting close to
a peak for investment growth, as global
credit concerns and tighter monetary
conditions could begin to weigh on Polish
investment growth
•
The property market is probably very close
to a peak so construction activity is likely to
slowdown in 2008
•
Euro2012 could help investment activity in
2009-2010, but not 2008
07
.
6
45 % y/ y, 1 2 mcma
40
<< Polish exports
35
30
25
IFO, Germany >>
20
15
10
5
0
-5
00 01
02
03
04
05
06
Index 110.0
107.5
105.0
102.5
100.0
97.5
95.0
92.5
90.0
87.5
85.0
07 08
percent
percent
Strong German economy helps Polish exports – but for how
long?
•
The German ifo index is defying gravity and has
risen again in February and March
•
The survey is not coming down as fast as
expected and hence paints a more robust picture
of the German economy than others
•
We, however, expect a slowdown in the German
economy in the coming quarters – that could
weigh on Polish exports
•
Polish competitiveness will gradually weaken in
the coming year due to higher wage growth and a
fairly strong zloty - but this should not be a major
concern
.../ figurbibliotek/
7
Rising inflation will push Polish rates higher
6
percent
%
1 4 -day NBP Bill rate >>
7
5
5
4
4
3
2
Both Polish inflation and wage growth have risen
significantly in 2008 and inflation remains well above the
Polish central bank’s (NBP) inflation target of 2½% y/y.
•
For the third consecutive month the Polish central bank
(NBP) has hiked its key policy rate by 25bp, thereby
bringing it to 5.75%.
•
We expect that NBP will deliver two more hikes during Q2
before going on hold for most of H2 2008. This should
bring its leading rate to 6.25%
•
We expect that inflation will peak in Q3 2008 and then
begin to decline, thereby bringing it back within the official
range target zone
•
Going into 2009, we could see a less hawkish stance
from the central bank, as the economic activity cools a
little, which should reduce some of the inflationary
pressures. If food and energy prices stabilise this could
pave the way for some easing through 2009-2010
6
3
Inflation
target zone
percent
7 % y/ y
•
2
1
<< Inflation, Poland
0
1
0
03
04
05
06
07
08
.
8
•
The zloty seems a bit expensive given the
recent appreciation of PLN against EUR. But
fundamentals also look strong - especially
compared to other countries in the region
We think that PLN could have further to go
during Q2 2008, if the central bank continues
to bring up its key rate, but clearly the upside
potential over the coming years have become
more limited. On the other hand we do not
expect any large negative correction in PLN
neither
%
<< PLN
Strengthening
99
00
01
02
03
04
05
06
5
0
-5
-10
-15
-20
-25
-30
-35
percent
% deviation from old currency basket
07 08
.
4.3
% å/ å
4.2
4.1
EUR/ PLN
4.0
3.9
3.8
3.7
3.6
3.5
3.4
Jan May Sep Jan May Sep Jan May Sep Jan
05
06
07
08
9
4.3
4.2
4.1
4.0
3.9
3.8
3.7
3.6
3.5
3.4
percent
•
5
0
-5
-10
-15
-20
-25
-30
-35
percent
Key drivers of the zloty:
• Economic growth
• Relative interest rates vs. US and
Euroland The political situation
• The valuation of the zloty
percent
FX outlook
.
130
Real EUR/ PLN (de-trended)
125
120
115
110
105
100
95
90
85
80
96
98
00
02
130
125
120
115
110
105
100
95
90
85
80
04
06
percent
percent
PLN pretty close to fair value
08
.../ figurbibliotek/
10
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