Polish Growth Slows More Than Forecast on Weak Demand

Polish Growth Slows More Than Forecast as Consumption Slumps
Poland, the only economy in the 27-nation European Union to keep expanding through the global slump in 2009, is battling to avoid its first recession of the post-communist era. Photographer: Bartek Sadowski/Bloomberg

Poland’s economy slowed more than economists forecast in the third quarter as export gains failed to offset weaker consumer spending, boosting expectations for an interest-rate cut next week.

Gross domestic product climbed 1.4 percent from a year earlier, the slowest pace since the second quarter of 2009 and compared with a 2.3 percent increase in the previous three months, the Warsaw-based Central Statistics Office said today. Economists predicted a 1.8 percent increase, according to the median of 35 estimates in a Bloomberg survey. GDP rose a seasonally adjusted 0.4 percent from the previous quarter.

Poland, the only economy in the 27-nation European Union to keep expanding through the global slump in 2009, is battling to avoid its first recession of the post-communist era. Prime Minister Donald Tusk has eased his deficit goals for this year and next to maintain growth, while the central bank reduced its main rate this month for the first time in three years.

“It’s another very bad surprise, with the biggest shock coming from the drop-off in consumption,” Tomasz Kaczor, chief economist at Bank Gospodarstwa Krajowego in Warsaw, said by e-mail. “Basically, this means that future economic growth is entirely at the mercy of foreign demand.”

Zloty Weakens

The zloty weakened to 4.1052 per euro at 12:50 p.m. in Warsaw, down from 4.0893 before the release, extending its decline to 0.4 percent on the day, the steepest among more than 20 emerging-market currencies tracked by Bloomberg. The average yield on the two-year government bond fell six basis points a record-low 3.42 percent.

Domestic demand dropped 0.7 percent in the third quarter after declining 0.4 percent in the second quarter, according to the report. Individual consumption rose 0.1 percent, the lowest rate since 2003, while fixed investments declined 1.5 percent, the office said.

Metro AG said today that it agreed had to sell its Real grocery stores in eastern Europe to France’s Groupe Auchan SA for 1.1 billion euros ($1.4 billion). Germany’s biggest retailer cut its 2012 profit forecast last month, saying Europe’s sovereign-debt crisis is hurting sales.

‘Strong Argument’

The Polish GDP data provide a “strong argument for more monetary easing, especially in a situation when further fiscal tightening isn’t possible,” Piotr Bielski, an economist at Bank Zachodni WBK, said by phone.

The rate will be cut by a quarter-point to 4.25 percent at the Monetary Policy Council meeting on Dec. 5, according to 18 economists surveyed by Bloomberg. One economist expects the rate will be cut by 50 basis points.

Household-credit growth slowed to 1.2 percent from a year earlier after 14.5 percent expansion a year ago, while corporate borrowing decelerated to 9 percent from 13 percent in last September, according to the central bank. No new jobs were created in the past three months and the jobless rate rose to 12.5 percent in October, compared with 11.8 percent a year ago.

The downturn is hurting earnings at Polish banks. PKO Bank Polski SA, Poland’s biggest lender, posted a 9.4 percent drop in third-quarter profit as bad-loan provisions increased, the Warsaw-based lender said on Nov. 12.

No Cushion

“Consumption growth is systematically decreasing and its sluggishness means there’s not much to cushion the economy in the event of a powerful negative external shock,” said Ernest Pytlarczyk, chief economist at BRE Bank in Warsaw.

Exports grew 0.7 percent from a year earlier in the third quarter, even as the euro area, Poland’s biggest trading partner, fell into a recession. Exporters cut their reliance on the currency area to 52.2 percent of total foreign sales through September from 54.3 percent in the same period last year.

The decline was offset by a 16 percent increase in shipments to developing countries, while exports to central and eastern Europe grew 20 percent, including an almost 12 percent expansion in sales to Russia. Grupa Konspol Sp. z o.o., a privately held Polish food producer that’s the main provider of processed chicken products for Portugal’s Jeronimo Martin SGPS SA retailer, began exports to Japan this year.

Polish growth will ease to 1.5 percent next year, the weakest since 2002, according to central bank forecasts. To counteract the deeper-than-expected slowdown, policy makers cut interest rates on Nov. 7 for the first time since 2009 and Governor Marek Belka announced the start of an easing cycle.

The bank will trim the benchmark by another quarter-point next week, policy maker Adam Glapinski said in an interview in Warsaw on Nov. 26.

“I believe there will be a cut in December, but I don’t think panic is the right response,” Elzbieta Chojna-Duch of Polish central bank’s Monetary Policy Council was quoted today as saying by Reuters.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE