What will the New Year bring?

With crude oil prices at record lows, the Polish currency regaining streinght and with reasonable growth forecasts will 2015 be a good year for the Polish economy?

The Russian economy in meltdown and the Ukraine facing an uncertain future it would appear that the eyes of Western investors are once more turning to Poland as the country enters the last phase of significant EU contributions to the economy. The new financing round is more specifically targeted and should generate significant growth opportunities for business. On the horizon there are two elections, first presidential in the spring which the current incumbent should win easily and then in the autumn parliamentary elections where although PiS is likely to gain most votes the PO and PSL coalition should gain a working majority. Clearly there is a need for a credible opposition with the capacity to govern rather than being an eternal gadfly on the back of the nation. Will such an opposition emerge is however a moot point as the last several attempts resulted in a once only electoral breakthrough above 5% and were followed by the total collapse of support. But with little alternative available alternatives on the economic policy front and at best irrelevant populist posturing there is actually probably no space for an effective opposition. Such is the modern world linked and voter apathy best described by the French word ennui.

2015

In the words of a former US President “the economy stupid…”.

The real key issue will be how soon European banks in general and Polish banks in particular start once again financing business investment. Or just maybe the old behemoths need to be encouraged to fail and a return to an old style seperation of retail and investment banking reintroduced. And when will banks learn that property values are not predestined to be on a continious upward turn. Maybe adding property inflation indicators to central bank measures of inflation might reintroduce some stability?

The truth is that Polish banks, having in the main part avoided the previous property bubble, are better placed to start financing real growth which is all to do with current and future consumption and not asset financing. As with all assets if no one can afford inflated property related costs and share values unrelated to future performance then we have the perfect recipe for the next crash.

Negative Inflation and Job Market

Recent data from the Polish Central Statistical Office shows continued deflation and growth in wages. Theoretically the two would appear to contradict each other but let us look more closely.

The Eurozone entered deflation with a vengence a little while ago and is causing significant concern. The contagion was bound to affect Poland for two reasons. Firstly it led to an appreciation of the Polish currency leading to cheaper imports. And secondly as expectations built on the domestic market that prices of Polish goods wiould also fall led to deferral of purchasing decisions both by consumers and companies forcing manufacturers to cut prices. Which actually bodes well for a further fall in Polish interest rates which remain high in comparison with Euro, US$ and GBP rates of near zero. The further falls will hopefully bring forward corporate investment decisions and also boost the domestic property mortgage market. And bring inflation back into positive territory. Time as ever will tell. However Poland with a still unsatisfied (due to low earnings) latent consumer demand is in a far better position than say Germany or the UK. Indeed how often in a given year do do German, UK, French, US consumers actually need to buy consumer durables, restaurant meals etc.

On the job front wage increase of above 3% year on year most probably is a result of actual shortages of workers in the job market suitably qualified to fill vacancies arising as the economy picks up. Many if not most companies went through a period of job shedding during the global downturn and probably shed more jobs that actually necessary relying on fears amongst workforce leading to excessive overtime. This may now be changing. The opposition trumpets the fact that many new job opportunities are “non jobs” in the service sector with low pay and little personal development potential. However the problems Amazon amongst others are finding in filling vacancies suggest that the market has swung in favour of employees who are increasingly looking to work in areas comensurate with their skills and training (even if this is often actually wishful thinking rather than reality). Which leads on to a supposition that labour efficiency and labour replacement with automation will be back on the agenda.

With the dramatic fall in demand for university places caused by the low birth rate 19 years ago hopefully the education sector will be forced to work in cooperation with future employers of their graduates to tailor courses offered to what the market actually requires.