“Rapid GDP growth, increases in wages and emerging investments prove the good condition of the Polish economy. However, the foreign trade deficit is like a flashing warning light. What can it warn against? Against consuming too many imported goods and earning a higher income,” writes Marcin Lipka, Conotoxia Senior Analyst.
For many years, the deficit in Polish foreign trade often exceeded 1 billion EUR on a monthly basis. It was the real Achilles’ heel of our economy. The situation began to change in 2012-2014, when the value of export was equal to import. The positive trend, although on a smaller scale, was also visible until mid-2017, when it was possible to maintain a positive balance of trade with foreign countries.
Unfortunately, the situation has been deteriorating for several months. The 12-month average trade balance dropped below zero, although in the middle of 2016 it amounted to approximately 300 million EUR per month. It is worth analyzing what caused the reversal of the positive trend from the previous years.
Export caught a temporary moment of breathlessness
The export growth rate has significantly decreased in recent months. Export grew by almost 11% until November. The first two months of this year have already decreased to about 6%.
Some observers have noted the recent zloty strengthening. However, it should be noted that this is really a return to the rates of 2015. A more probable solution is our business partners’ moment of breathlessness. Italy and the United Kingdom have recently imported fewer Polish goods.
We can also see a worse condition in other countries of the region. Thus, it seems that this element does not raise anxiety, it remains rather independent of national conditions. The negative tendency is likely to be temporary, taking into account the continuingly positive global situation.
Two key import types. One good, the other... consumer
Since export should not be of concern at the moment, it's worth focusing on import. It is first worth dividing the purchase of goods abroad into three categories: investment, consumption and the third, currently less important, intermediate goods. Acquiring the first one usually means an increase in expenditure on modernizing enterprises, which in the long-term improves domestic economy competitiveness. Increased demand of the latter means consuming the fruit of a good economic situation is over-exploited.
Until mid-2017, investment imports clearly floundered. In recent months, however, its noticeable acceleration can be seen. The last half year has had a growth rate of around 15% y/y. For that reason, it is positive information which should not cause nervousness.
On the other hand, the very significant increase in consumer goods imports may be of serious concern (Eurostat BEC data). Throughout 2017, consumer imports (clothing and footwear, cosmetics, household appliances/electronics, food; this category does not contain fuel) increased by approximately 12% and by almost 15% y/y in the fourth quarter. The latest available data looks spectacular. In January 2016, Poland imported consumer goods worth 2.86 billion EUR and after two years it is already 3.9 billion EUR or by 36% more.
A worrying conclusion
Slight deterioration in the condition of export and an increase in investment imports are unlikely to raise serious concern. Much higher risk is associated with maintaining strong growth in consumer import (cosmetics, household appliances, clothing). This may mean that instead of using their higher income and new social benefits to save money, Poles simply use it for consumption.