Polish Industrial Output Falls, Boosting Rate-Cut Case

Polish industrial output plunged the most in almost four years, boosting expectations for an interest-rate cut next month to avert the first recession in two decades for the European Union’s largest eastern economy.

Production declined 10.6 percent in December from a year earlier, after decreasing 0.8 percent in November, the Central Statistical Office in Warsaw said today. That was the steepest fall since April 2009 and more than the median estimate for a 6.5 percent contraction in a Bloomberg survey of 28 economists. Output dropped 14.2 percent from the previous month.

Poland’s central bank reduced rates for three straight months after the economy slowed to its weakest since 2009 in the third quarter. While Governor Marek Belka said last week the bank may pause its monetary-easing cycle, today’s data and slowing price growth support further rate cuts, said Ernest Pytlarczyk, chief economist at BRE Bank in Warsaw.

“It all fits together: this is a recession,” Pytlarczyk said by phone after the data. “No matter whether you look at working days, construction, job losses or car production, it points to contraction. The central bank will cut interest rates again in February.”

The zloty slumped almost 1 percent to the euro after the report to a two-month low of 4.1570 as of 3:40 p.m. in Warsaw. The yield on the two-year government bond fell two basis points to 3.324 percent.

Operating Loss

PKN Orlen SA probably posted an unexpected operating loss in the fourth quarter after Poland’s largest oil company wrote down the value of its Czech refiner, the Plock, Poland-based company said today. Falling demand amid a slump in neighboring Czech Republic contributed to the loss, Tomasz Kasowicz, an analyst at Bank Zachodni WBK SA, said by phone.

The next four months will be difficult for Poland’s economy and a “somewhat deeper” rate reduction than the current cuts of 25 basis points each may be needed, Anna Zielinska-Glebocka of the central bank’s rate-setting board was quoted as saying on TVN CNBC in an interview today.

Slowing growth in Germany, which buys a quarter of Polish exports, along with the output drop and a decline in December’s inflation rate mean that “another 25 basis-point interest-rate cut in February is currently our baseline scenario,” Maja Goettig, a strategist at KBC Groep NV in Warsaw, said by phone.

Job Cuts

German gross domestic product growth will slow to 0.4 percent this year from 0.7 percent in 2012, the German Economy Ministry said on Jan. 16. GDP may have fallen as much as 0.5 percent in the fourth quarter from the previous three months, suggesting Europe’s biggest economy is on the brink of a recession, the Federal Statistics Office estimated.

In a separate report, employment at Polish companies shrank 0.5 percent in December from a year earlier, the statistical office said today. That compares with a 0.3 percent decline in November and a median estimate for a 0.4 percent decrease in a Bloomberg survey of 24 economists. Hiring fell 0.4 percent from November.

December wage growth slowed to 2.4 percent from 2.7 percent in November, the office said. That was above the 2.1 percent median estimate in a Bloomberg survey of 27 economists.

(Updates with economist comment in eighth paragraph, markets in fifth.)
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