Polish Industrial Output Declines in Boost to Interest-Rate Cuts

Polish industrial output fell more than analysts estimated as the European Union’s largest eastern economy slows, boosting the case for the central bank to cut interest rates further.

Production declined 2.1 percent in February from a year earlier, after growing 0.3 percent in January, the Central Statistical Office in Warsaw said today. That was more than the median estimate for a 1.6 percent contraction in a Bloomberg survey of 31 economists. Output dropped 2.8 percent from the previous month.

The Polish economy is facing its deepest slowdown in 12 years as domestic demand contracts and the euro-area recession hampers exports. The central bank has lowered borrowing costs to a record after five interest-rate cuts since November and Governor Marek Belka said last week it may do more if growth undershoots the bank’s expectations.

“The industrial sector is still not out of the woods,” Janusz Dancewicz, chief economist at DZ Bank Polska SA in Warsaw, said in an e-mailed note yesterday. “A reading below the forecast will increase chances for another rate cut.”

Car production fell 29 percent from a year earlier in February, IBRM Samar research company said on March 8. Waning demand from the euro area, which buys 53 percent of Polish exports, curbed automotive output.

There are no “clear signals” of economic recovery in Poland, Deputy Finance Minister Janusz Cichon said in a March 14 interview, adding there’s room for more monetary easing.

The central bank is betting that reducing borrowing costs by 125 basis points since November will help the economy rebound from 1.3 percent growth in 2013, the worst since 2001, according to a staff projection released last week.

Growth is more likely to stagnate than rebound in the second half, policy maker Andrzej Bratkowski was quoted yesterday as saying by PAP newswire. Inflation slowed to 1.3 percent in February, its weakest pace in more than six years, as the flagging economy curbed demand.

To contact the reporter on this story: Piotr Skolimowski in Warsaw at pskolimowski@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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