Polish Growth Slows Less Than Forecast on Exports Cushion

Poland’s economy slowed less than economists forecast in the fourth quarter as exports helped offset weakening consumer spending, taming arguments for more interest-rate cuts.

Gross domestic product climbed 1.1 percent from a year earlier, which was the slowest pace since the second quarter of 2009 and compared with a 1.4 percent increase in the previous three months, the Warsaw-based Central Statistics Office said today. Economists expected a 0.9 percent increase, according to the median of 32 estimates in a Bloomberg survey. GDP grew a seasonally adjusted 0.2 percent from the previous quarter, defying expectations for the first contraction in four years.

The European Union’s largest eastern economy has been battling the worst slowdown in three years as the euro area, its biggest trading partner, fell into recession. The central bank has responded by cutting interest rates by 1 percentage points since November and Governor Marek Belka said last month the fourth quarter “didn’t bring a further drastic deterioration” in economic conditions.

“The data show the economy in a soft landing,” Maciej Reluga, chief economist at Bank Zachodni WBK, said by phone from Warsaw today. “We expect growth to bottom out in first quarter and then start an export-driven recovery.”

Reluga predicted the economy will grow 1.2 percent in 2013.

Near Bottom

The zloty strengthened 0.4 percent after the report to 4.1340 per euro at 5:03 p.m. in Warsaw. The yield on the two-year government bond rose eight basis points to 3.55 percent, extending its increase this week to 12 basis points, or 0.12 percentage point.

Signs the slowdown is approaching its trough are starting to appear. Industrial production unexpectedly rose 0.3 percent in January after decreasing 10.6 percent in December, the lowest since 2007, amid improving business confidence in Germany, Poland’s biggest export market.

“Today’s data give a better starting-point for subsequent quarters and force an upward revision of our forecasts for the first half,” Ernest Pytlarczyk, head of financial market research at BRE Bank in Warsaw, said by phone. “We have significant doubts there’ll be a technical recession, growth could just be flat.”

Recovery Starts

The recovery has “probably already” begun and “the worst is over” for the economy, Belka said in an interview in New Delhi on Feb. 25. Poland’s purchasing managers’ index, a gauge of manufacturing, improved to 48.9 in February from 48.6 previous month, HSBC Holdings said today. Job cuts that had fueled the contraction “might be bottoming out,” Agata Urbanska, HSBC Central and Eastern European economist, said in the PMI report.

Exports contributed 1.8 percentage points to GDP growth in the fourth quarter, according to the statistic office’s preliminary data today. That helped offset a 1 percent contraction in private consumption, the first yearly fall since 1996, which shaved half a percentage point off the economic expansion in the October-December period, the office said.

Individual consumption accounts for 62 percent of Poland’s GDP.

“The early weeks of this year show that the slowdown is continuing, but fortunately, it’s not getting any worse,” Jacek Owczarek, chief financial officer at Eurocash SA, Poland’s biggest distributor of non-durable goods, said in a phone interview yesterday. “We see the retail market growing a little faster than inflation this year.”

‘Good Enough’

While the recent reports suggest the economy will rebound in the second half of the year, the government will probably reduce its budget forecast for 2.2 percent growth this year, Deputy Finance Minister Janusz Cichon told TVN CNBC broadcaster in an interview today.

The fourth-quarter data “are a weak starting point for building optimistic forecasts,” Cichon said. “I would be inclined to believe that the revision will be needed, but it won’t be deep.”

Poland’s economy, the only one in the European Union to avoid recession since 2008, will expand 1.2 percent in 2013, the slowest pace in 12 years, as domestic demand falters, the European Commission said on Feb. 22. Growth will accelerate to 2.2 percent next year, according to the EU’s executive.

The central bank’s Monetary Policy Council holds its next rate meeting on March 5-6. Twenty-two of 37 economists surveyed by Bloomberg predict a quarter-point rate cut to 3.5 percent, matching the historic low.

“The figures released today could be good enough to warrant a well-flagged pause in rate cuts,” Mateusz Szczurek, chief economist for Central and Easter Europe at ING Bank SA, wrote in e-mailed note today.

Even if policy makers decide to cut borrowing costs next month, the string of promising data may be enough to allow the central bank to switch to a “wait-and-see” stance for the rest of the year, Grzegorz Maliszewski, chief economist at Bank Millennium in Warsaw, said in an e-mailed comment today.