Coverage of high-potential mid-market firms in Poland

Advisory article

Poland sold off with Russia; Five reasons Poland will shine

Close to Russia and Ukraine, Poland was a collateral damage from the Crimea flare-up. The iShares MSCI Poland Capped ETF (EPOL) has slumped 5.9% this month, only slightly better than Market Vectors Russia ETF‘s (RSX) 7.2% loss.

But Poland is no Russia, which is now expected to register zero growth this year. London-based Capital Economics expects Poland to grow at around 3.5% this year and next.

The London-based research firm gave out five reasons. First, Eurozone’s economic recovery will boost Poland’s export-led industrial sector. Exports are about 40% of GDP there, and Germany – the strongest economy in the Eurozone – is Poland’s largest trading partner, accounting for one quarter of its total exports. Here is analyst William Jackson:

Our view that German GDP growth will accelerate to 1.5% this year and 2.0% in 2015 is, on past form at least, consistent with Polish industrial production growth picking up to 8% y/y or so from 5% y/y at present. This alone could boost overall GDP growth by almost 1%-pt.

Second, investment should bounce back:

Investment has fallen for most of the past two years which was, in large part, due to the escalation of the euro-crisis in 2011. But the prospects for investment seem to have brightened markedly.

Third, labor market should improve too:

The Polish Statistics Office’s survey on firm’s employment expectations is consistent with private sector employment rising by as much as 2% y/y over the coming months.

Fourth, inflation remains low:

We think – and the National Bank now seems to agree with us – that inflation will remain below the Bank’s 2.5% target both this year and next.

Fifth, households are feeling rich:

Polish households fuelled a consumer boom in 2009-11 by saving less and less of their income. But this caused savings to fall to a record low of just 2% of disposable income by the middle of 2012. As we warned would happen, households subsequently rebuilt their savings, but to do this they held back consumption.

Source: Barrons

2014-03-21



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