Polish Growth Slows More Than Forecast on Debt Crisis
Poland’s economy slowed more than economists forecast in the second quarter as companies and consumers scaled back spending amid the euro-area debt crisis, bolstering the case for cutting interest rates next month.
Gross domestic product rose 2.4 percent from a year earlier, the slowest pace in 11 quarters, compared with a 3.5 percent increase in the previous three months, the Warsaw-based Central Statistics Office reported today. The figure lagged behind the median 2.9 percent estimate of 34 economists surveyed by Bloomberg. GDP increased a seasonally adjusted 0.4 percent from the previous quarter.
Poland’s economy is forecast to expand 2.7 percent this year, the slowest pace since 2009, when it was the only one in the European Union to avoid a contraction. The country sells more than half its exports to the 17-nation euro area, which contracted in the second quarter amid a deepening debt crisis. Polish export growth slowed for a third quarter to 3.6 percent, compared with 4.8 percent in the three months through March, today’s report showed.
“The slowdown is bigger and coming earlier than anyone has thought,” Monika Kurtek, a Warsaw-based economist at Bank Pocztowy SA, said by phone. With the economy likely to “slow even further in the coming months, the argument for a rate cut is getting stronger and it’s timing more imminent.”
The zloty traded at 4.1888 per euro at 2:30 p.m. in Warsaw after dropping to a five-week low of 4.19 at 10:17 a.m. That took its decline in the past three days to 2.5 percent, the most among more than 170 currencies tracked by Bloomberg. The yield on two-year notes fell 5 basis points to 4.10 percent, the lowest since Aug. 10, data compiled by Bloomberg showed.
Domestic demand dropped 0.2 percent in the second quarter, the first decline since the third quarter in 2009, as investments slowed to 1.9 percent, down from 6.7 percent in the first three months of the year, according to today’s GDP report. Public investments fell 0.1 percent, while consumer spending increased 1.5 percent after growing 3.6 percent in the same quarter last year.
“Consumers and companies aren’t coping,” Boguslaw Grabowski, an economic adviser to Prime Minister Donald Tusk who said on Aug. 10 that Poland could slip into a recession unless the central bank cuts rates and deficit goals are eased, told TVN CNBC after the data. “The numbers are rather surprising and, if confirmed by subsequent data, give food for thought.”
Investors in interest-rate derivatives raised their bets that the central bank will cut borrowing costs this year. Three- month forward rate agreements fell seven basis points after the release to trade at 4.66 percent. The contracts are trading 38 basis points below the three-month Warsaw Interbank Offered Rate, according to data compiled by Bloomberg.
“I can only hope that this data will be a final call for a rate cut,” Piotr Soroczynski, chief economist at the state- owned Export Credit Insurance Corp., said by phone from Warsaw. “Monetary easing can’t be postponed any longer.”
While central banks across the world are undertaking the broadest reduction in borrowing costs since 2009 to avert a global slump, the Narodowy Bank Polski raised its interest rates by a quarter-point in May to 4.75 percent and only two members of the 10-people council have since spoken out in favor of a rate cut next month.
The reading gives even more reason for the central bank to debate an interest-rate cut at its next policy meeting on Sept. 4, Elzbieta Chojna-Duch of the Monetary Policy Council was quoted as saying today by the PAP newswire. She was against the rate increase in May and together with another policy maker, Andrzej Bratkowski, has spoken out for a cut since then.
“Following today’s data, more members of the council would consider cutting rates,” Kurtek said.
The bank has changed its “policy bias” and prospects for cutting borrowing costs have increased, Governor Marek Belka said in an Aug. 28 interview with Radio PiN. While he ruled out raising rates, Belka said that a meeting of policy makers in Warsaw on Sept. 4-5 is unlikely to surprise investors.
“Our main export markets are undergoing stagnation, investors are bombarded with bad news, and our economy has to slow,” Belka also told the radio station.
Jobs growth slowed to zero in July from a year earlier, the slowest in 25 months, while the unemployment rate has been between 11.4 percent and 13.5 percent for two years. It will stay at about that level through 2013, the government predicts.
Fewer jobs and limited wage growth will reduce consumer spending, which represents 60 percent of GDP, while external risks and high borrowing costs will discourage companies from making new investments, Soroczynski said.
“No new investments will be undertaken as companies want to wait for better times,” he said.
Companies have already reduced their advertising budgets, hurting media companies such as Agora SA (AGO), Poland’s largest publicly-listed publisher, whose second-quarter net income slumped 94 percent to 1.3 million zloty from a year earlier. TVN SA (TVN), Poland’s second-largest television network, reported a net loss of 231 million zloty in the second quarter.
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