Polish GDP Q2 2007

Here is the latest preliminary release from the Polish Statistical Office for Q2 GDP:

Poland's economy expanded an annual 6.7 percent in the second quarter, faster than expected, suggesting interest rates may be raised a fourth time this year. Growth in gross domestic product compared with 7.4 percent in the first quarter, the Central Statistical Office reported in Warsaw, and exceeded the 6.1 percent median forecast of 21 economists surveyed by Bloomberg. The economy grew 6 percent in the second quarter of 2006.
Bloomberg

In fact the rate of GDP growth in Q2 - which according to my calculations was 0.34% - seems to have slowed from Q1, when it was a fierce 1.6%. This slowdown can be seen in the following chart.



Domestic demand increased year on year by 9.3% in the second quarter, up from 8.6% in the first quarter, and from 5.4 percent in the same period last year. Consumer demand increased 5.1 percent, up from 4.8 percent a year ago, while production grew 6.3 percent, slower than the 9.2 percent growth rate achieved in the second quarter of last year.

The prime contributors to second quarter growth seem to have been fixed investments and a large increase in inventories, which combined boosted annual growth in gross capital formation to 34.2% in the second quarter, up from 26.8% in the first quarter.

Construction, of course, increased considerably - by 17.7 percent - up from 12.1 percent in Q2 2006, but down from the first quarter's 40.1% rate, an output level which had been aided by unusually warm winter weather.Investments rose 22.3 in the second quarter, up from 14.5 percent last year and down from 29.6 percent in the first quarter.

Basically it is very hard to determine anything very clearly at this stage from the provisional data we have. A lot depends on what is happening with the inventories, and where construction is going. As we can see from the following chart, the annual increase in Q2 has slowed somewhat, but this doesn't really mean that the economy is slowing to any significant extent, we need to see more data going forward to decide on this.




What the data does seem to show is that fixed investment has replaced private consumption as the main contributor to growth, and this seems strange. Fixed investment contributed a net 3.8 percentage points to second quarter GDP growth, up from 3.6 percentage points in the first quarter. Private consumption contributed 3.2 percentage points, down from 4.6 in the first quarter.

A negative contribution was made by foreign trade, at -2.6 percentage points, a deeper dent than the -1.1 percentage points registered in the first quarter. Exports increased 7.8% on the year in the second quarter, while imports grew 14.2%. So obviously there are big trade balance issues to think about.

Industrial output growth slowed to 6.3% on the year in the second quarter, from 9.1% in the previous three months. While the services sector expanded 6.0% on the year, down from a 7.4% increase in the first quarter.

Polish Central Bank Raises Interest Rates

The Polish central bank raised their benchmark interest rate a third time this year today, as wage growth and household spending coupled with growing labour shortages threaten to push up inflation. The Monetary Policy Council lifted the seven-day reference rate by a quarter of a percentage point to 4.75 percent.

The Polish economy expanded 7.4 percent in the first quarter, which was the fastest pace in a decade. With wages rising at a record pace in the second quarter, policy makers have said inflation may exceed the central bank's 2.5 percent target by the end of the year unless interest rates are lifted again.

In fact average corporate wages grew at an annual rate of 9.3 percent in July, and at a record rate of 8.9 percent in the second quarter. Employment rose 4.7 percent from a year ago in July, while unemployment fell to 12.2 percent and retail sales rose at an astonishing annual 17.1 percent. The inflation rate fell to 2.3 percent in July from 2.6 percent in June. The central bank expects it to rise to 3.3 percent by December if borrowing costs are left unchanged.

The interesting thing to note here, as can be seen from the piece below from Bloomberg, is that the Zloty kept falling despite the rate increase. The weather is changing, and quickly.

Poland's zloty fell for a second day versus the euro as declines in global equity markets prompted investors to shun riskier emerging-market assets.

The zloty dropped along with Turkey's lira and the Slovak koruna as the NTX Index of stocks in central and eastern Europe's 30 biggest companies lost the most in almost two weeks. The Polish currency was the second-worst performer against the euro in Europe after the Romanian leu.

``Investors are growing increasingly nervous and the declines in equity prices are taking their toll on emerging market currencies,'' said Michal Dybula, central European economist at BNP Paribas SA in Warsaw. ``We may see more losses if U.S. stocks open lower today.''

Against the euro, the zloty fell to a one-week low of 3.8495 and was at 3.8454 by 11:36 a.m. in Warsaw from 3.8302 yesterday. It may extend its drop to 3.9 by the end of 2007, Dybula said.

Katarzyna Zajdel-Kurowska and the Euro

Poland's Deputy Finance Minister Katarzyna Zajdel-Kurowska is widely quoted this morning as saying:

``Poland is definitely on the way to the euro.''

She made this statement after revealing that Poland's 2007 budget deficit will be narrower than the government's original forecast. I have no idea when or whether Poland will enter the euro, but I would say that, as in the case of the Baltics, the potential labour shortage issue, and the problem of wage and cost push inflation that this will generate is a much more important medium term obstacle to Poland's euro membership than the budget deficit issue is.

Poland, Retail Sales July 2007

Retail sales in Poland rose in July by 17.1 percent from July 2006 and 1.7 percent from June, according to the Warsaw-based statistics office this morning. This was the fastest annual pace in four months, and has raised expectations that interest rates will be increased for a third time this year, maybe as early as next week.

Variations in the monthly index can be seen in the chart below.



And the rapid rate of increase can be observed in the next chart which shows annual change each month.



Consumer demand, which is being driven by the fastest growth of wages in six years and a record increase in the number of new jobs, is putting considerable pressure on inflation, and this has already produced a half percentage-point increase in the benchmark interest rate earlier this year. Today's data may lead monetary policy makers to raise the interest rate again as early as at their next meeting on Aug. 28-29.

In a separate report, the office said the rate of unemployment in July dropped to 12.2 percent from 12.4 percent in June. The number of unemployed totaled 1.86 million people, or 39,000 fewer then in June and 587,000 below July last year, when the rate was 15.7 percent. The unemployment data confirmed estimates of the Labor Ministry published on Aug. 8.

The zloty was trading at 3.8389 per euro at 10:05 a.m. in Warsaw, up from 3.847 yesterday. The yield on the government's five-year bonds was unchanged for a second day at 5.69 percent.

Polish Migrants More Choosy About Their Jobs in the UK

Signs are growing that the tide of Poles going to work in Britain may have peaked.

According to the UK Home Office, the number of workers applying to work in the UK from the A8 countries – the eight eastern and central European nations of the As analysed by Latvian Abroad here, almost two-thirds of the 683,000 workers who have applied to work in the UK from A8 countries have come from Poland.

The latest UK figures appear to show that eastern and central European migrants had started to move up the jobs chain and are occupying more professional positions.

Some 41 per cent of registered workers applied to work in administration, business or management posts during the latest quarter. This compared with 25 per cent three years ago when Britain opened its job market to A8 workers.

On the other hand, UK fruit and vegetable growers have warned this week that they are facing a struggle to attract sufficient eastern and central Europeans to harvest their crops because A8 workers had become more choosy about the work they undertook.

According to the Home Office the hospitality industry has accounted for 19 per cent of jobs filled by A8 workers, and agriculture 11 per cent, since 2004.