Transcript Poland - Chiwa Media

Poland
Business and economic outlook
Quarterly update – July 2016
By Dr Daniel Thorniley
Contents
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What does Brexit mean for CEE?
Executive summary
What do executives think about the CEE region?
Corporate comments on CEE and Poland
The political outlook
List of good things going on
The CEE region and Poland
CEE and Poland looking good in the world
Regional long-term trends
Why has CEE improved in the last two years?
Why does the Polish economy perform better than its peers?
Latest trends
Business outlook
Economic outlook
Inflation outlook and interest rates
Currency outlook
Statistical table
What does Brexit mean for CEE? (1)
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Directly not much actually and not in 2016 but there is more negative impact in 2017.
Traditionally the UK has not done much business proportionately with the CEE region and
the same applies to Russia. Direct investment from the UK is often moderate or small.
But while the impact will be very limited this year, we do except some noticeable but
manageable downward pressure on GDP growth in 2017 and then presume that much of the
harm will evaporate by 2018
But 2017 will be less good than it would have been!
The core CEE markets (and Romania and some of the SEE markets) have experienced an
excellent 2-3 year stretch and the only real risk for them is any serious collapse in the
Eurozone and of course the chance of this happening has risen but this is not a central
scenario for now.
Presuming the global economy loses only -0.1% to Brexit effects in 2016 and -0.2% in 2017,
then we expect the Eurozone to lose only -0.15% this year to attain 1.3% GDP growth in 2016
and then to lose -0.3% or -0.4% in 2017 with GDP reaching 1.1%. If 0.2% to 0.3/0.4% is
clocked off Eurozone growth, then GDP growth will be clipped in the CEE markets also
by about the same scale (-0.1% in 2016 and another -0.3% or -0.4% in 2017). Much will
also depend on what counter-measures CEE governments take to mitigate the
slowdown.
Monetary loosening is not much of an option given interest rates are low in most
markets
What does Brexit mean for CEE? (2)
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But Bulgaria, Hungary, Slovakia and Czech Republic have room for some fiscal stimulus whereas
Poland and Romania will be running deficits this year close to the EU limit of -3.0%.
Given that these markets are growing well in range of 2.3% to 4.0%, this is something most of them
should be able to absorb without too much trouble.
For example, we still think that all the major core CEE markets will grow by more than 2% in 2016
and closer to 3% in some cases while in 2017 all will grow by more than 2%
We also think, after sluggish investment trends for much of the region in the first half of 2016 due
to the budget cycle for EU funding, that EU-funded investment will accelerate in the second half of
this year and some domestic investment will plug some gaps and this is the consensus view.
Equally markets like Poland and Romania and others have strong consumer spending trends to
support the economy.
Russia is only really vulnerable if Brexit hits the oil price along with global growth. As long as the oil
price fluctuates above $45, then the rouble can retain some moderate strength and the
consequences for the Russian economy would be muted.
The rouble has in fact strengthened a little recently even with the oil price flat at about $48-49 and
most CEE currencies declined by only 2-3% on Brexit news and have moderated risen a bit since
We repeat of course that all this applies in our central scenario with the UK presumably remaining
in some single market formation.
What does Brexit mean for CEE? (3)
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Brexit effects could possibly linger into the future through the following scenario
While several markets will engage in counter-cyclical and pro-growth polices, external EU
funding could potentially come under threat as large net contributors fall out of the EU and in
this case the UK
Formal Brexit will probably takes place in 2018-19 and the EU funding will not change before
then
But in the next EU funding cycle and from 2020 major net contributors and France and
Germany may lose patience with the likes of Poland and Hungary and other CEE markets if
they continue domestic and international polices which go against the grain of fundamental
EU policy
Simply put: several big western countries may ask: “Why are we paying these ungrateful and
difficult CEE countries so much money when our own revenues are shrinking?”
This is NOT our central scenario and it remains possible that if the UK stays in the single
market, it will remain a sizeable contributor to the EU budget
But this possible outcome could make CEE countries accelerate their absorption of EU funds
in 2016-2020 “just in case” funding were to diminish after that date
Executive summary (1)
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Regarding operational business in the CEE region, one can argue that the region is getting
“boring”!! This is a huge compliment 
In Poland and the CEE region most executives can focus on reasonably normal business
challenges in the market place
Most other global markets are under more severe economic, business and political strains
but the CEE region and Poland look and feel like safe havens
This applied of course more 9 months ago before political risk rose in Poland and Brexit then
shook Europe
BUT still relatively the CEE and Poland look economically and commercially stable and good
for day-to-day operational business
Despite a slightly slower first quarter in 2016, the consensus view for GDP growth is solid and
widespread: about 3.4% this year and 3.1% in 2017 and then averaging around 3% to 2020
and then softening to just under 3% until 2023
We have tweaked our forecast lower because of a slower Q1 and also due to Brexit but
medium-term Poland still looks good with one of the soundest forecasts in Europe or globally
BUT this interpretation is not everyone’s “cup of tea” and some executives fear weaker
domestic factors: postponed investment and projects (see our Business Comments section)
Executive summary (2)
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The big trend in Poland (and CEE markets) is that investment slumped in the first half of 2016
In some markets private investment has filled some (not all) of the gap but in Poland with
domestic political uncertainties, international investment is more sluggish and domestic
companies are postponing some investment.
After 6.1% investment growth in 2015, the consensus for this year is 2.5% but some
commentators think this could even be flat this year
We share the view that investment will start to rally in Poland from late autumn as more EU
funding is released and more local authorities start to co-finance (and the latter financing will
add to the budget deficit)
Poland does know how to use EU funds: Poland’s absorption rate of EU funds at 93% in 2015
was the highest in the CEE region
The main risks to rising investment are the fragility of external growth and the EU, FDI flows,
labour shortages and domestic political uncertainty
Several companies in IT, construction and utilities note more gridlock in the civil service
Officials are concerned about signing off on deals especially as political appointments and
large personnel changes are being made: no one wants to risk his/her career by signing off on
anything remotely controversial
Executive summary (3)
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The economic and business outlook remains good or even better
Several indicators are at 5-10-20-year best levels
Our central forecast, and echoed extremely strongly by the consensus view, is that most
changes will be of a political or social nature and have relatively little impact on output
Yes, if confidence is undermined, then some western companies may postpone investing
And yes the credit rating and zloty have been moderately impacted negatively recently but
the decline in the zloty is more related to a Euro rally
The consensus STILL predicts a stable zloty and a small appreciation in the next 6-9 months
Companies globally are desperate for growth and Poland is one of a shrinking number of
markets which offers this
Some of the Law and Justice legislation and polices will be pro-growth such as the pledge on
child benefits, and support of Swiss franc mortgage holders will probably boost consumer
spending or prevent it declining
The consensus view for now is that the new government will also restrict the budget deficit
to -3.0% in 2016 or perhaps -3.2% worst case in 2017 but this would be temporary
Comparisons of turning Poland into “Orban’s Hungary” are a little off-target in that most
western companies have reconciled themselves to the current environment in Hungary which
is actually allowing many companies to flourish
Executive summary (4)
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Our remarks here are not intended as a whitewash of the new government or taking sides in an
emotive situation
Just to say: that operationally and commercially there are few negative effects as yet in sight for
western and domestic companies
Poland’s business outlook will remain steady, strong and relatively very strong within the
European and global context
We were proven right when we argued 3-6 months ago that the inflation increase would be more
moderated than the consensus view
Poland remains a very tight, increasingly competitive, highly price sensitive market with many
operational challenges
But there is no doubt at all that Poland now ranks as a key strategic market in European business
development; it cannot be ignored in isolation and in a cluster with other sound CEE markets it is
an excellent remedy to markets globally and further East in Europe
What do executives think about the CEE region?
(based on our June 2016 Survey)
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It looks pretty good: overall compared with other developed and emerging market
regions, perhaps with the exception of SE Asia, senior corporate managers are
more upbeat about the CEE region
A) What is your view of the medium and long term business outlook for the CEE
region?
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11% of respondents have a very positive view about the CEE region medium and
long term
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81% have a slightly optimistic view
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And only 8% are somewhat pessimistic
B) Are you experiencing a slowdown in business in 2016 compared with 2015?
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Some 29% reply “Yes” and 71% respond “No”
C) Do you expect to meet your original 2016 revenue budget?
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Yes = 70%, No = 30%
What do executives think about the CEE region?
(based on our June 2016 Survey)
D) Do you expect to meet your original 2016 profit budget?
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Yes = 74%, No = 26%
E) Do you have difficulty managing global HQ expectations?
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Yes = 38%, No = 62%
F) Is competition getting tougher?
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Yes = 87%, No =13%
G) Will you invest in CEE expansion in 2016-17?
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Yes = 75% and No = 25%
H) Do you have plans to expand manufacturing in CEE in 2016-17?
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Yes = 36% and No = 64%
Corporate comments on CEE and Poland (1)
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A few weeks ago in Switzerland 8-10 senior regional (EMEA) managers from a whole range of
different industrial sectors concluded as follows:
“Global business is generally very hard and tough; Russia is actually better than you might
think but not as good as it used to be; and the CEE region is one of the brightest spots in the
global and emerging markets and within that region Romania is the hottest and “sexist”
market of all” !!
In Vienna last month, one regional a manger of a consumer goods company reported: “Yes,
core CEE is generally good or better for us. Poland is still a star and a big regional volume
market for us. But of course we all know how competitive it is”
The regional MD of a global IT company with 25 years’ experience noted: “In the CEE and EE
region there are always every year some markets which are red or green or amber and they
often inter-mix and change from being good or bad and we have to manage that internalregional vitality but it is not as bad as global trends; Poland can be tricky but overall in the
last 10 years and now it is a crucially important market. IT has been more volatile (and hard in
some sub-sectors) than most and that’s our industry but for all companies Poland has been
and is generally BIG and GOOD”
Corporate comments on CEE and Poland (2)
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The regional director of a US industrial conglomerate which supplies to textiles, plastics,
construction, food , pharmaceuticals and car manufacturing among others gave this very
positive view:
“Our CEE region is growing organic sales in the first half of 2016 at a rate of 16% and this is
the most successful region in the world”
“Also for the first time all 17 markets where we operate are growing including core CEE and
SEE and former Yugo and several markets are growing in double-digits while Poland is rising
at 6.5%.”
“Moreover every market also reported profits and many of these were very decent and again
some markets close to or above double-digit profit growth”
“As you always, note, when you are doing so well, then HQ inevitably puts further pressure
on you and we are expecting this and need to manage expectations downwards”
“Poland is big and good for us but like everyone we also witness how competitive the market
is, how tough tenders are and how you have to fight on price and quality balance. Poland is
good but far from easy!”
Corporate comments on CEE and Poland (3)
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As one regional director of one of the Top-10 global FMCG companies commented in Vienna:
“Poland is getting impressive. It’s still a very hard market with all the features of tough
western retail BUT it now has a bit better growth than almost anywhere”.
The executive news is generally good but some sectors see more negative trends
The regional MD of a US IT company noted that: “In our industry the politics and domestic
games are having a serious impact and it could worsen. Bureaucrats don’t know which way to
turn to whether they will have a job soon. Projects are being postponed and this is combined
with the EU Funds deceleration. For many of our on-going projects we are in a waiting
pattern. This is not happening to every single IT company but many face the same
challenges”.
The country manager of a large utility firm echoed these trends and concerns: “We are
seeing increasing grid-lock in commercial decisions. Financing is getting a bit tighter but we
witness simply increasing deals in each step of the deal transaction and this is spreading into
months now. It’s much more difficult now to assess who is behind the decisions and which
lobbies and interest groups are fighting for power. I get the sense that things are becoming a
bit less transparent”.
The political outlook (1)
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Many see Law and Justice (PiS) as a populist, nationalist, socially-conservative and anti-liberal,
anti-business party but this may be over done
The expected conversion of Swiss franc mortgages would probably have been implemented by
another coalition with the burden ending on the banks; the extent of this burden is still to be
clarified
The bank levy has been explained as a means to ensure lower taxes for SMEs for example
There are several options to handling this and a final decision is only likely by September
Current thinking is also that the banks will not be treated too harshly and that the original draft
of the Swiss-franc mortgage loans legislation will be modified to the banks’ benefit (the
conversion will be spread over time and not all loans included)
Given that banks currently have excess liquidity and any problems with loans stem from the
demand side, we do not expect this to have much negative impact on credit expansion trends
On the other hand, bank taxes (anticipated revenues of 6bn zloty) and the retail sector taxes
(anticipated revenue of 3bn zloty) may make these sectors more wary of investment plans and
this could impact slightly negatively on overall investment numbers. At the same time EU
funding is cyclically soft. But other private sector investment in Poland is not bad.
Details of the taxes are still being ironed out
The political outlook (2)
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Measures to raise the tax-free threshold and to cut the retirement age will probably be
postponed until 2018
With PiS leading in current opinion polls (35%) gives the party more time to deliver (or
modify) their election promises
Without being sarcastic, any new government would have to inflict a lot of damage to
seriously harm such a good economy as that of Poland
The government is easing fiscal policy by introducing a monthly child subsidy of 500 zloty
But this is estimated to cost only 0.15% of GDP and will be funded by taxes on banks, retail
outlets and by one-off exceptional sales and eventually by tax-tightening collection methods)
But financing the child allowance will get more tricky in 2017
Yes, political risk has increased noticeably and this will not evaporate quickly
The Polish government is looking to et up a PR foundation to improve the nation’s image but
as an editorial in the Financial Times argued on 19 July, recent laws passed on counterterrorism, the judiciary and the media suggest that PiS “cares little for …..democracy, human
rights and the right of law”
Practically relations with the EU could be damaged but Hungary provides Poland with a
protective veto on any serious measures which could harm the country economically
List of the good things going on (1)
(updated)
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The success list is long: for consistency we retain this list from our earlier reports with
necessary updates. The key point is that any deterioration in the Polish market is
relatively mild and due mostly to external or cyclical issues:
– GDP in 2015 was 3.6%, will dip to about 3.2% in the next 2-3 years then average about
2.8-3.0% from 2020
– These are among the best numbers in Europe and among the world for a country at
Poland's level of development
– Poland is the 6th largest economy in the EU
– Retails sales averaged 3.5% last year and we anticipate 3.7% increase this year: one of
the best in Europe
– New bank credits, increasing at 5-7%, are driving the economy although they may dip to
2-4% expansion this year
– Industrial output averaged 5.0% in 2015 and should still average 4.5% in 2016. These are
the best figures since 2012 and close to all-time highs
– Continued EU funding in the 2007-13 cycle ran out last year but we expect an
investment rally after a slow initial 9 months in 2016
– The business confidence average in the last two years is the best since 2009
List of the good things going on (2)
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Consumer confidence (EU standard) has averaged 11-12 level through 2015 close to the best
figures for 20 years and this has slightly improved to –9 in June 2016
Deflation was the feature of 2015 (at -0.9%) after posting a 20-year record low monthly figure of
-1.6% in February 2015. As we anticipated, fears of rising inflation were overdone and we now
expect another year of deflation in 2016 (-0.5%)
Low inflation helps real wages: with prices deflationary, real wages rose in 2015 by a big 4.6%
and will average +4.0% in 2016 and 3% in the next 5 years as inflation climbs up slowly
These real wages are among some of the best in the world
Low inflation means low interest rates for the next 18 months; rates will increase slowly as prices
start to rise at the end of 2017. The Monetary Policy Committee may be cautious about further
cuts given the on-going fiscal stimulus. Low rates will support corporate spending
Unemployment, the laggard, is also finally improving rapidly: it dipped below 10% to 9.8% in
December and to 8.8% in June, the second best figure in 35 years!
The budget deficit is under control and below EU targets at -2.9% in 2016, or just above in 2017
Exports in November 2015 at $15bn were the highest in 20 years and in 2016 exports have
followed seasonal trends at good high levels and exports were at $13.5bn in May
The current account may well have climbed into positive territory for the first time ever in 2015
thanks to positive trade and investment trends! This account will be almost balanced in 2016
The CEE region and Poland (1)
(The following 3 slides are similar to ones in earlier reports but have been partially updated and
remain very valid)
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Core CEE grew 6-8 times faster than Latin America in 2015 and will do so in 2016!
Poland is one of the best performing transitional markets in the world
Consumer confidence in Hungary and Czech Republic over the last 20 months have seen some of
the best improvements in the world and in Europe
The Eurozone was also recovering and will grow by 1.4% this year: lower oil prices, a weaker Euro
and the introduction of QE will spur the CEE region
But Brexit will bring down EU GDP growth to about 1.1% in 2017
When the Eurozone grows an extra 1%, then the CEE region grows an extra 1.3%
But a slightly weaker EU will mean a slightly weaker CEE BUT at manageable good levels
Core CEE went through a very tough 5 year period from 2009 to May 2013
Business executives were certainly disappointed and despondent with the region
Poland is the star of the European growth performance
Poland combines the growth of an emerging market with the volume of a developed one
Poland is the 6th largest economy in the EU
The consensus for 2015 and 2016 GDP growth is one of the best in Europe at 3.5%
The Polish GDP growth story also looks sustainable
Noticeably Poland looks like out-performing Russia in the short and even medium-term
The CEE region and Poland (2)
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The economic rally has lasted 3 years now after starting in spring 2013
The Ukraine crisis and Russian recession have only taken about 0.15% off CEE growth
Brexit will clip off 0.1% in 2016 and about 0.2% to 0.3% in 2017
One other negative is that in 2020 the CEE working population is set to be 5% smaller than in 2013
and worst hit countries are Poland, Bulgaria and Slovakia
Poland is a tight, competitive market but it remains one of the key-3 markets in the CEE region with
Russia and Turkey
It is also very much a single-digit sales growth market, definitely mature
Poland is now seen strategically as a key growth driver for companies operating in Europe
Regional CEE mangers are frequently congratulated on their sale/profits performance and then
asked to double their budget next year! Seriously though, to a significant extent, this is happening
and executives are constantly asked to raise their achievement bar
The core CEE cluster of Hungary, Poland, Czech, Slovakia and Romania now represents a solid
business cluster to compensate in part for the slowdown in Russia, Ukraine and Turkey
The timing of this core CEE rally could hardly have been better for regional CEE/Ceemea managers as
Russia, Ukraine slumped
The Big-3 markets of the CEE region were and to a large extent still are: Russia, Turkey, Poland.
Currently (and after recent events in Turkey) Poland looks the most resilient and sustainable of these
The CEE region and Poland (3)
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South-east Europe is still under-performing but a recovery is starting in 2016-17
We have taken Romania “out of the Balkans”! based on very solid trends
Romania is the hottest market in the region in 2016
Within the greater CEE region, Poland has usually accounted for 22-26% of regional
business when Russia accounted for 35-45%
Our latest Survey, Poland still ranks second after Russia as priority market in the CEE
region for the next 3-5 years with 55% of respondents ranking it thus and this is a higher
number than 6 months ago when the figure was 44%
Still, western sales in Poland are very single digit (70%) but this is a large volume market
Poland is the same as other CEE markets….except it’s different!
The Polish market is bigger and more complex with more opportunities and challenges
And it has been less of a roller-coaster than other CEE markets over the last 5-7 years
CEE and Poland looking good in the world
(updated)
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CEE and other regions comparative GDP growth
Core CEE region
South East Europe
West Europe (including UK)
USA
Latin America
Asia pacific
2015
2016
2017
3.6
3.0
1.8
2.3
-0.2
4.6
2.9
3.3
1.5
1.9
-0.5
4.5
3.2
3.0
1.2
2,2
2.0
4.5
Sources: Consensus Economics, Ceemea Business Group, IMF
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The comparative numbers speak for themselves with the core CEE region growing faster
than any region in the world with the exception of Asia pacific. South-East Europe is
now posting its delayed rally.
Regional long-term GDP outlook
(updated)
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And for how long will the good times continue?
The consensus for solid growth for the CEE markets is actually quite reasonable and
sustained over the next 5-7 years with moderate cyclical deceleration
Average annual GDP growth by period
2011-2015
Hungary
2.0
Poland
2.9
Czech Republic
1.2
Slovakia
2.5
Romania
2.8
2016-2020
2.3
3.1
2.7
3.2
3.4
2021-2025
2.0
2.8
2.3
2.9
3.2
Source: Ceemea Business Group
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Given likely low growth in the Eurozone of 1.7% average over the next 7 years and with
Russia's GDP medium-term outlook at about 2.0%, these numbers are solid. Once
again, when taken as a cluster, they do look a bit like a growth engine
Why has core CEE improved in the last 3 years?
1. Improvement in Eurozone just noted: low oil price helps disposable consumer spending
on non-energy items , low inflation helps real wages, weak Euro helps exports and
quantitative easing will help stock markets and property sectors. But from mid-2014 we
also started to see a positive contamination from exports and investment into
consumer spending which has usually been the weak link in these markets
2. Bank credits are flowing at a better of 2-4% with Poland surging at 5-7% growth
3. Several CEE governments are imposing softer austerity programs on their economies
4. Inflation (or deflation) is extremely low in all the CEE markets
5. This allows the central banks in the region to keep interest rates at record low levels
which in turn kicks back and stimulates the investment and production outlook.
6. Low inflation (or deflation) is very important in stimulating real wages (i.e. salary after
inflation): if wages are up 1% and inflation down -1%, then real wages are up by 2%.
Polish real wages rose by 4.6% last year and will remain very good at 4.0% this year and
trend at 2%+ in the next 3-5 years (as inflation climbs up) helping to boost consumption
7. Finally, unemployment has slowly recovered and the pace of improvement is
accelerating and has reached record low levels in Poland as well
Why does the Polish market perform
better than its peers?
Poland has outperformed the other core CEE market (even in the 2013 downturn) for
several reasons:
1. Poland has a large domestic economy
2. It is less dependent on external trade with the proportion of GDP emanating from trade at
only 33% in Poland compared with 72% in Slovakia, 70% in Hungary and 60% in the Czech
Republic. When global and Eurozone trade has slumped, being less dependent on trade had
been a big positive for Poland
3. The government was much less obsessed with austerity measures than other CEE markets
4. The banking sector and loan profile is stronger and the Central Bank has been reasonably
aggressive in cutting interest rates to support GDP growth. The authorities are also
eliminating certain restrictions on consumer lending
5. Remittances from abroad have been very strong although they have slowed
6. Polish companies are sitting on cash and are relatively profitable
7. Inflation has fallen sharply in recent quarters
8. The Central Bank is ready to intervene to protect the zloty at around 4.40 but will want
monitor current depreciation as much of this is to do with perceived political risk
Latest trends (1)
(updated)
In the following table we compare some selected indicators at the start of 2013 (January)
with numbers for May June 2015, December 2015, March 2016 and May-June (the numbers
are year-on-year i.e. comparing the month(s) in 2014 with the same month/period in 2013
etc). Percentage change unless stated otherwise:
Jan 2013
Retail sales
Consumer confidence
Business confidence
Industrial output
PMI
Inflation
Unemployment
*See notes following
0
-3
-12
-10
48
2
13
May/June
2015
4.1
-13
6.1
3.0
54
-0.8
10.4
December
March 2016
2015
6.9
-12
0.8*
6.7
52
-0.5
9.8
3.0
-10
4.9
0.8*
53.8
-0.9
9.4
May-June
2016
4.3
-9
5.2
3.5
51.8
-0.8
8.8
Latest trends (2)
Notes to the table
• First of all, most indicators remain at good/solid levels or even close to all-time bests
• Given global downgrades and regional issues with migration and domestic Polish politics,
some moderate dips may be expected through the first half of 2016
• Retail sales were on a rising trend in 2015 and averaged 3.5% last year and we anticipate a
rise in 2016 to about 4%+ on the back of an increase in child benefits given also strong real
wages, falling unemployment and solid consumer confidence
• Consumer confidence at -9 is the second best number in 20 years
• Business confidence rallied to 4.9 in March and 5.2 in June after a seasonal low in December
but the average for 2015 was strong at a level of 6 to 7 and close to all-time record levels
• Industrial production in 2015 was powerful averaging 4.9%. The March 2016 figure looks like
a blip and we see industry coming close to last year's figure even though Q1 was a bit softer
• Despite perceived heightened risks, manufacturing PMI rebounded to 53.8 in March but then
slowed to 51.8 in June. This is still a very good figure but softer than the super numbers of
the last two years
• After averaging 13-14% for the last 5 years, unemployment is finally coming down and at
9.4% in December surpassed a 20-year low figure and then improved further to anew record
of 8.8% in June
Business outlook (1)
Based on our June 2106 Survey
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In terms of a priority market for the next 3 years, Poland remain in second spot behind Russia but is
catching up with 44% of executives making this ranking 6 months ago but now some 55% placing
Poland as No 2
For 2016 Poland now ranks 4th in terms of the rate of sales growth and even ahead of Russia and
Turkey but only marginally. In 2016 Georgia, Hungary and Romania are above Poland
But when you combine volume and rate of sales, the Poland would be up in the top-3 with Russia
and Turkey
For 2017 Poland now ranks 10th out of 23 CEE markets we survey for the rate of sales growth but
this improves to 5th when you remove mini-markets and other markets which excel on slightly high
double-digit trends
One can still argue for 2017 that pretty closely Poland ranks just behind Russia and close to Turkey
for the rate of sales growth
The business outlook is for a competitive, single-digit growth market in 2014-2016 (70% in Poland)
Poland is the same as other CEE markets…but different
It is a bigger market than the other CEE ones and therefore has more geographic scope and options
for affordable innovation, different marketing and sales strategies:
Business outlook (2)
Based on our June 2106 Survey
•
•
•
•
•
Curiously the number of companies planning cuts in sales and marketing spending
has risen from 3% some 6 months ago to 11% now. This ranks Poland quite high in
this category but many other markets are close to this number so Poland actually
ranks average
The number of companies planning to reduce headcount has also decreased over
the last 18 months from 16% in December 2014 to 9 % in December 2015 and to
5% in June 2016 which puts Poland in the bottom quarter of 23 markets in the CEE
region
Only 5% of firms report problems with receivables in Poland which places it at the
very bottom (good) end of the table.
But downtrading is a constant feature of business: much of this has already
happened and Poland ranks mid-table in the CEE region with 32% of firms referring
to this feature
Price wars, margin pressures and downtrading to cheaper brands will continue,
although sales are likely to steadily improve in 2016
Business outlook (2)
Based on our June 2106 Survey
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With the Russian market facing more challenges in 2016, companies will divert more
attention to other key markets such as Turkey and to some extent Poland
The market in 2016 is a solid single-digit one (72% of all companies): the upside is that 35% of
firms forecast high-single digits this year with 20% planning double-digit growth
Again when we combine the large volume of sales with these growth figures and compare
them with others in the CEE regional and across Europe, the picture is positive
In 2016 the overall profit picture actually improves with those forecasting single digits jumps
to 70% with 10% planning for double-digit sales
Thanks to strong consumer indicators, consumer product companies predict a good year
ahead with improvement on 2015: this year no company plans flat or negative sales; 25%
forecast low single digits and the other 75% look to high-single digits
These are strong numbers for consumer products in Europe
The B2B sector in 2015 was strong due to good investment which falters only a little in 2016
Poland ranks highly because industrial output is very solid and now for 2016 some 69% of
B2B companies budget for single-digit growth with 15% forecasting low-double digits and
those numbers are solid for this sector but 15% do expect declining sales this year
Business outlook (3)
Based on our June 2106 Survey
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•
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The good B2B results for 2015-16 are supported by domestic bank financing and EU-related
co-financed projects which will return to a booster function in late 2016
Private investment (excluding EU funds) is still moderately buoyant
The Polish IT sector was “not bad” in 2015 but of course again very tight on price with some
80% reporting low-single digit growth; BUT in 2016 we see a big negative shift and a large
diversity with nearly 65% of all IT companies forecasting single-digit sales decline while
another 35% still predict double-digit growth
We noted in our last report when IT forecasts were stronger for this year that “these
numbers may be on the optimistic side especially for large-scale corporate and/or
government IT sales as the market tightens up”
Several IT companies have told me in private that they saw a sharp deceleration in recent
months and weeks
In pharmaceuticals and health Poland ranks upper/mid-table in our Survey of 23 markets for
2016 with an even spread of companies reporting sales that are flat (15%), low-single digits
(25%) and high singles (15%) BUT with 42% predicting low double-digit increases
As in other markets much depends on market share and whether you supply to government,
private sector or OTC
Poland
Corporate revenue and profit results and forecasts, 2015-17, all sectors
Comparison of our December 2015 and June 2016 surveys
Poland
Latest forecasts: revenue and profit results by sector, 2016
From our June 2016 survey
Poland
Latest forecasts: revenue and profit results by sector, 2017
From our June 2016 survey
Economic outlook (1)
•
•
•
The short and medium term outlook is good but the start of 2016 has been soft for
predicted and new reasons
Quarterly GDP in Q1 2016 was just negative at -0.1%, the first fall since 2012
Q2 will not be so strong either and the effect of Brexit will clip off just 0.1% from GDP
this year and about 0.25% in 2017
•
•
Low interest rates and steady new credits (despite bank taxes) will reinforce GDP
We expect GDP to soften this year to 3.4% compared with 3.6% in 2015 and to
decline a bit further to 3.1% next year and then average close to 3% over the next
5-7 years
•
But this year, as we strongly anticipated, EU-funded investment has slumped and after
posting 6% growth last year, investment will slow to 2.5% and some commentators
argue that it could even be flat
But we think some private investment will help mitigate the negative impact and in the
final months of this year there should be the start of a rally with investment increasing
by up to 5% in 2017
•
Economic outlook (2)
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•
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But the PMI indicator, after recording good prospects in March at 53.8, then softened 51.5 in
June which is still a decent number, just much down on super figures reported over the last
two years
Industrial numbers have also rallied along with construction on a quarter to quarter basis but
construction still remains -14% down on the figure one year ago
Polish corporates are borrowing more money with corporate new credits rising by 6-7%
compared with just 0.7% in 2013 and higher debt securities issuance is another positive
feature
New credits were still averaging 6.5% in the first two months of 2016 but it is plausible that
such credit expansion will ease to 3-4% this year as the banks sort themselves out
Exports are steady but will come under downward pressure thanks to a weaker EU outlook
with GDP in EU in 2017 at 1.1% instead of the 1.5% estimate made pre-Brexit. But the weaker
zloty should help compensate a bit and we see exports still increasing around 5% this year
and next
Imports could grow stronger as rising consumption sucks them in (see further below)
Softer overall investment will be compensated by stronger consumer spending thanks to
enhanced child benefit payments, a tighter labour market, real wages rising at 4% and
eventual tax cuts (see below)
Economic outlook (3)
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•
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Another key element behind growth has been the government’s reluctance to engage in
austerity measures adopted by other Eurozone and CEE regimes to their detriment
The child subsidy ought to boost consumer spending, particularly among low income families
and this may provide more openings at the lower priced consumer segments (the subsidy is
500 zloty for the second child and for the first child in poorer families)
Low inflation, low interest rates, rising wages, stronger consumer confidence, steady exports
and not bad investment and industrial output which in turn reduce unemployment all
combine to support the economy this year and in 2017-20 as EU-funding, domestic political
tensions and Brexit press downwards
Despite the current deceleration and bumps along the road, Poland still has the potential to
be the biggest and one of the best growing economies in the region and could be set to
record a faster rate of growth than Russia for the next 4-7 years
The business confidence indicator averaged 7 in 2015 and the average in 2014-15 was the
best since 2008; after the year-end seasonal dip, the indicator was back to 4 in June
The trend is similar with PMI: this was super-strong though 2015 at a level of 53-54, one of
the highest in Europe and then dipped at the start of the year but rallied to a strong 53.8 in
March and then softened to 51.8 in June which again shows the effects of external and
internal disruptions
Economic outlook (4)
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•
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We see similar trends in industry which looks set to soften a little this year to 4.5%
growth after the stellar 4.9% last year and we still believe this figure will average
close to 5% in the subsequent 3-4 years
The indicators above underline again that the Polish economy as coming from “a
sweet spot” and even though some deterioration is visible in some sectors, it is
insufficient to cause serious declines and we and the consensus do not anticipate
any serious collapse
Dare I say, Poland looks one of the safest markets in Europe (I hope I am not
tempting fate here )
Car production in 2015 was another good, steady or better year with a monthly
average of 35-40,000 and the seasonal trend in 2016 is at least matching production
in the last 2-3 good years or a bit better and the May figure was 47,000
The same applies to car registrations and the December number of 37,000 was at a
12-year high but this was surpassed in March at 42,000 and the June number was
still very strong at 38,000
Economic outlook (5)
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Overall Exports have risen solidly for the last 10 years
The average monthly figure for 2015 was just below $14bn and the December 2015 close to a
20-year record and the seasonal trend in the first months of 2016 is steady
We see similar trends in import growth
But the trade balance was exceptionally positive last year and this ensured that the current
account balance was either close to zero for the first time in 25 years or just in negative
territory (-0.2%)
Poland position in many sophisticated supply chains into the EU helped buttress trade and
overall investment but we will see over the next 18 months just how much Brexit hurst that
overall and especially within the automotive sector
In Poland for more than a year now overall new bank credits have accelerated from a “not
bad” level of 2-3% expansion to a best-in-class of 5-7%
Poland is consistently improving in the World Bank’s Ease of doing business indicator and this
figure is now a low (good) 25 compared with 72 in 2008
Poland has no trade or current account deficit problems, far from it
Economic outlook (6) – Consumer spending
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The outlook for consumer spending logically has to be good: decent consumer confidence, very
high real wages on the back of deflationary prices (or low inflation end 2016 and start 2017),
government spending, good domestic industrial output combined with decent trade which is
allowing the unemployment figure to actually tumble downwards
Along with this, consumer credits are strong meaning that consumers can spend out of their
wages in their wallets or buy on credit
Consumer spending was strong at an average of 4.2% growth in 2010-11 but then softened to
an average 0.5% in 2012 and 2013. As with other indicators, consumer spending rallied in 201415 posting 3.1% in 2015; we anticipate a rise to 3.7% this year due to government policy and
then stabilising over 3% per annum until 2019
Consumer confidence ranged weakly at -30 to -20 for much of 2010-13. This improved to -15 in
2014 and the number has improved to -9 in June
Retail sales varied from 5-10% growth in 2010-11 and then stabilised at 3% to 4.5% in 2012-14
and maintained that level at an average 3.5% in 2015 on a rising trend. We think 2016 will be
another good year reaching 4.0% which would rank Poland as one of the best retail markets in
Europe despite the intense levels of competition
The fiscal boost of child benefits will be a big component this year
Economic outlook (7) – Consumer spending
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The negative impact of the Swiss franc seems largely to have been absorbed
Deflation and/or weak price rises are boosting real wages: as recently as 2012 these
were negative but were already not bad at all in 2013 at 1.6% growth and in 2015 with
negative inflation (-0.9%) and nominal wages up about +3.8%, then real wages jumped
by 4.6%
De-flation is proving sticky as we predicted against the consensus: prices were down 0.9% in January 2016 and still -0.8% in June
This means inflation will be negative again in 2016 on average as it was in 2015
We anticipate nominal wages at about 3.8% this year and with inflation at -0.5%, then
real wages will increase by about 4.3%, one of the best levels in Europe
Real wages will decelerate to +2-3% in the coming years as inflation creeps up, but they
will remain supportive of solid consumer spending
Unemployment has been Poland's weak link but is getting much better: unemployment
was still a high 13% just 2 years ago but fell to a remarkably low level of 9.8 in
December and then further to 8.8% in June
This exceeds record low levels of unemployment over the last 35 years set in 1998 and
2008
Inflation outlook and interest rates (1)
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Poland is following and matching deflationary/low inflation trends in the rest of core CEE
We expect with the consensus that prices will rise moderately over the next 15 months
It was negative -0.9% last year and will stay negative as an average this year at -0.5% but
will start to run positive in late 2016 and early 2017
However, we have cautioned on the deflationary side because the consensus has been
consistently too high for global and CEE inflation trends over recent years. This seems to be
repeating itself as the inflation consensus for 2016-17 comes down
Inflation is low for all the standard reasons: energy costs are now (very) low, food prices are
weak thanks to a good harvest and food prices are generally lower than usual as exports to
Russia are re-directed back into Poland or other CEE/EU markets; the zloty is down 3-5% on
the Euro but this is insufficient to cause an serious inflationary push
Eurozone prices are also generally very low so input prices are soft ; prices are generally
very competitive in the “Germanised” retail market with downtrading a common feature
There is still also some decent level of spare capacity which allows for some further noninflationary growth
Inflation outlook and interest rates (2)
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As a result of all this, prices turned negative in July 2014 and have remained negative for 2 years
Poland will experience negative inflation for about 27 months until late autumn 2016
The so-called output gap is not small but diminishing so there was room for non-inflationary
growth but as this indicator shrinks further this year, then so too will inflation rise (slowly)
Our estimate (guess) for the oil price turned out right (so far) at about $45 per barrel as we
argued that $30 at the run of the year “felt” much too low and so energy price inflation will creep
up and is doing so
Inflation will average -0.5% in 2016 (small risk on either side) and then with low inflation across
most of Europe and competitive retailing, we see moderate inflation in subsequent years
averaging 1.4% in 2017 and 1.6% in 2018
The Monetary Policy Committee cut the key rate to 1.5% in March 2015 and it will probably stay
there into mid-2017 as risks are balanced. Given very low inflation, risks from Brexit and a
tightening labour market, any rate cut is very unlikely and the need for monetary stimulus is
much less given the government’s fiscal expansionary plans.
The only question seems to be when any rate hike will take place and we expect that eventual
price rises by late 2017 will necessitate the start of a slow rising interest rate cycle
As the ECB may encourage yet more loosening and stimulus, the Polish National Bank would not
want to see too much discrepancy with Euro rates as that could turn the zloty “too hot”
Currency outlook (1)
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Over the years the zloty has fluctuated versus the Euro from mid-2010 to end-2014
in a range of 4.10 to 4.30 with a weaker patch in 2011
Currency risk has picked up lately due to the credit downgrade by Standard & Poor's
and general political risk perception and also due to a mini-rally in the euro versus
the dollar
At the turn of the year, the zloty slumped from its recent 4.25 average to 4.40
thanks to the perceived political risk stemming form the new government
As the zloty stabilised, then renewed weakness appeared thanks to Brexit and the
currency fell back to 4.44
In recent weeks we have witnessed a mild strengthening to 4.37 as global portfolio
investors continue their search for yield
We expect the zloty to average 4.35 this year to the Euro and then to strengthen to
4.20 in 2017 and 4.15 in 2018
With US interest rate hikes now postponed to end of the year or longer, ME
currencies are looking a good bet
Currency outlook (2)
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Versus the US dollar, the zloty followed the CEE and global weakening trend from
3.0 in July 2014 to 4.12 January 2016 but then rose against the dollar to 3.97 in
mid-July 2016
The dollar-zloty rate has fluctuated quite a bit in the last 15 months but this is
more reflection of the ups and down between the Euro and dollar
We see an average dollar-Euro rate this year of 1.12 and then to average 1.08 in
2017-18 with some downside risk for the Euro
US interest rates will now climb more slowly than expected and the zloty can
stabilise versus the US dollar
Medium-term we (and the consensus) see some zloty strength versus the Euro
from the current “weak spot” and then renewed stability given good growth
outlook, low inflation, improved current account and further QE in the Eurozone
Given the (presumed) revived zloty stability with the Euro, the Polish currency will
then probably move in line again with the Euro versus the dollar and presumably
downwards a bit in the next 1-3 years versus the dollar
Poland - forecast table
2012
2013
2014
2015
2017
3.1
5.0
5.0
3.4
3.2
3.0
1.4
-2.9
-0.8
2018
3.3
4.8
5.1
3.1
2.8
2.1
1.6
-2.9
-1.2
2019
-0.2
2016
3.4
2.5
4.5
3.7
3.2
4.3
-0.5
-3.2
-0.5
GDP
Fixed investment
Industrial output
Household spending
Government spending
Real wages
Consumer prices (average)
Budget deficit (% of GDP)
Current account (% of GDP)
1.6
-1.7
0.5
0.8
0.1
-0.2
3.7
-3.9
1.3
-1.1
1.8
0.2
2.2
1.6
0.9
-4.0
3.3
9.8
3.1
2.6
3.8
3.6
0.0
4.5*
3.6
6.1
4.9
3.1
3.4
4.6
-0.9
-2.9
-3.5
-1.4
-2.0
Exports
Imports
Zloty/Euro, average
Unemployment av. (%)
3.8
-1.7
4.19
12.8
6.5
3.5
4.20
13.5
6.8
6.1
4.18
12.2
5.5
5.3
4.20
10.5
5.0
5.0
4.20
9.0
5.2
4.8
4.32
8.6
4.8
4.3
4.17
8.5
4.8
4.4
4.10
8.3
Notes: Real annual % change unless stated
* The budget suddenly moves into a surplus in 2014 because of the one-off transfer of private pension
funds to the state fund. Without the transfer, the underlying deficit is around 3.6%
3.2
4.4
4.9
2.9
2.8
1.8
1.7
-2.8
-1.7
Disclaimer, copyright, sources
© 2016 CEEMEA Business Group*
CEEMEA Business Group currently works with senior leaders of over 440 large multinational companies operating in
the Central Eastern Europe, Middle East and Africa regions, helping them understand economic and business
outlooks globally, regionally and at country levels. Regional and global executives also receive regular advice and
updates on best practices for expansion and success in emerging markets. Executive members of the CEEMEA
Business Group can also attend regular peer group meetings held throughout Europe and in Dubai.
Source: DT-Global Business Consulting GmbH and CEEMEA Business Group research
Basic data sources come from central banks, own intelligence network, CEEMEA Business Group corporate survey, governments and
other public sources. Interpretation, views, forecasts, business quotes and business outlooks by DT-Global Business Consulting GmbH and
CEEMEA Business Group.
This material is provided for information purposes only. It is not a recommendation or advice of any investment or commercial activity
whatsoever. The CEEMEA Business Group accepts no liability for any commercial losses incurred by any party acting on information in
these materials.
Contact: Dr Daniel Thorniley, President, DT-Global Business Consulting GmbH
M: +43 676 534 685 / E: [email protected] / W: www.ceemeabusinessgroup.com
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