Planned inward investment into Poland

The last few years saw a slow down in investment into Poland, not least as many Western companies started looking further East. With the unstable situation in the Ukraine it looks like Poland is once again back in the running.

Today two press articles supported the trend. Gillette is reported to be moving 250 jobs from a German manufacturing facility to its site in Łódż in Central Poland. Also PAIiZ, the foreign investment agency announced that Italian companies are looking to make four major investments next year.

And of course this year saw the opening of two Amazon distribution centres in Poznań and Wrocław clearly aimed ar servicing the German market.

With interest rates at record low levels the time has probably never been better to invest in Poland.

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.

Polish property market and planning regulations

With the UK (or whatever it will be called should the Scots decide to go alone) showing double digit rises in property values is the same about to happen in Poland?

Theoretically property values should be rising in Poland yet this has not as yet happened. Of course one reason is that the banks remain highly cautious about property based lending. And this is no bad thing as Poland was sheltered from the more abrupt value falls seen particulalry in the US, UK, Spain and Ireland. The boom there has been led by what in retrospect can be seen as irresponsable lending. Logic would dictate that with continued economic growth in Poland demand should be building up nicely. And indeed it is but is matched by supply.

The (lack of) Polish planning regulations and in particular agricultural zone and brown field developments ensure that it will be some considerable time before future supply, both of commercial and domestic property, can be predicted with any degree of accuracy. Whilst the building permission process is still cumbersome and not particularly transparent there would appear to be few constraints on type of development, zoning and density of development. Which all conspires against development of long term property investment and rational lending policy by the banks.

But then on the positive side a low underlying land value to building cost ratio ensured that falls in value caused by the global economic crisis were far less dramatic than elsewhere and add a further reason why values are not rising.