The zloty index by Cinkciarz.pl. October 2015. Part 2

Even though the zloty had another increase in September, the scale of the Polish currency's enforcement was relatively small. The zloty only gained significantly to the EME and CEE countries.

Detailed description of indexes

In September the nominal Cinkciarz.pl MAJ_33 index was higher by 3.3% in relation to the last year. The situation deteriorated to the previous month, when it was 2.9%.

The real index showed a slight deterioration of price competitiveness. In August the index which included differences in inflation was by 0.6% higher in relation to last year, and by minus 0.1% the month before.

Since 2012 the zloty remains in an increase trend. Enforcement of the Polish currency in August, means maintenance of this tendency.

The real index shows a relative stabilisation on the rate of the zloty. The real MAJ_33 index has moved away from the highest levels since 2014.

In the twelve-month-period, finished in July 2015, the export on the markets of the 33 most important trade partners increased by 5.1 percent in relation to last year. The contribution of the most important trading partners was 90.9% in general export.

In September the nominal Cinkciarz.pl MAJ_16 index was by 3.3% higher than the year before. The situation deteriorated in relation to the past month, in which it was plus 3%.

On the other hand, the real index shows that we are dealing with a period of stabilisation in competitiveness of Polish export. In September the index which includes the differences in inflation was by 0.3% higher in relation to the past year.

Just like in the case of the MAJ_33 index, the MAJ_16 index remains close to the highest level for the last few years. In the first part of the year, the index reached the highest level since 2011. Currently, it is slightly lower than this level.

The real index does not show as high levels. However, it allows to observe the zloty appreciation that began at the beginning of 2012. After a temporary wear off, this tendency continues to gain strength.

In the twelve-month-period, finished in July 2015, export to the markets of Poland's 16 most important trading partners increased by 5.6% to the past year. The contribution of the most important trading partners included in the tight index was 76.1% in general export.

In September the nominal Cinkciarz.pl MAJ_7 Index was by 4% higher in relation to the past year. This is a deterioration in relation to the month before, when the dynamics were 3.7%.

Also, the real index showed a deterioration in competitiveness of the Polish export. In September the index which includes the differences in inflation was by 1.4% higher in relation to the year before.

Just like in the cases of MAJ_33 and MAJ_16 indexes, the MAJ_7 index remains close to the highest levels for many years. In the first part of the year, the index reached the highest level since 2011.

The real index does not show as high levels. However, it shows quite well the appreciation of the zloty which started at the beginning of 2012. The scale of this phenomenon is smaller to the case of the wider indexes.

In the twelve-month-long period, finished in July 2015, export to the markets of Poland's 7 most important trading partners increased by 5.8% to the past year. The contribution of the crucial trading partners included in the index was 54.5% in general export.

In September the nominal Cinkciarz.pl CEE Index was by 20.6% higher in relation to the past year. This means that the situation deteriorated in comparison to the last month when it was 19.9%.

Also in the case of the real index, we are dealing with a strong deterioration in price competitiveness. The index which includes the differences in inflation was by 10.5% higher to the past year.

September was another month of deterioration in price competitiveness on the CEE markets. The zloty had three increase months in a row, and due to this it returned close to the record high levels.

Export to the markets of central-eastern Europe quotes negative dynamics for eight months. In the twelve-month-long period, finished in July, the decrease was 2.7% to the same period the year before. This means that the scale of depreciation reduced to the past month. Contribution of central-eastern Europe countries reduced to 22.3%, in relation to 22.4% the month before.

In September the nominal Cinkciarz.pl CEE_NO_CR Index was by 1.4% lower than last year. This index does not include the countries experiencing the currency crisis – Russia, Ukraine and Belarus. Thus, the situation improved in relation to the past month. In July the dynamics were minus 1.3%.

A look at the CEE_NO_CR index from the long perspective suggests that the zloty continues to be very strong to the other currencies in the region. This has not changed by a recent wear off on the Polish currency. The zloty is currently close to the highest level in relation to the currencies in the region since 2009. This means that the source of deterioration of competitiveness in Polish export in the region is not only the currency crisis experienced by Russia, Ukraine and Belarus.

The same tendencies are observed on the real CEE_NO_CR index. After considering the differences in inflation, the index shows that in the past years the zloty was significantly enforced to the currencies in the region.

In the twelve-month-long period finished in July, export to the markets of central-eastern Europe (excluding Russia, Ukraine and Belarus) increased by 8% in relation to the past year. The contribution of this region's countries in general export was 16.3% - without changes in relation to the past months. Even though the increase in export to the central-eastern Europe countries is relatively high, the dynamics remain very humble in relation to the past years.

In September the nominal Cinkciarz.pl SCAN Index was by 3.7% higher than last year. The situation improved in relation to the past month. At that time the dynamics were 4.3%.

The SCAN Index shows that the zloty is currently very strong to the Scandinavian currencies. The zloty is currently close to the highest level in relation to this region's currencies since 2010. The situation on the oil market continues to have a negative impact on the Scandinavian currencies.

The same tendencies are shown by the real SCAN index. Competitiveness of Polish export on these markets deteriorated, especially in the recent quarters.

In the twelve-month-long period, finished in July, export to the Scandinavian countries decreased by 3.3%, after a 3.8% depreciation one month before. The contribution of these countries in general export was 6.5%.

In September the nominal Cinkciarz.pl EME_NO_CR index was by 2.7% lower than last year. The situation deteriorated in comparison to the past month. At that time, the dynamics were minus 4.9%. This index consists of countries included in the group of emerging markets, with exclusion of Russia and Ukraine.

The EME_NO_CR index shows that the zloty is currently very weak in relation to the currencies of the emerging markets countries. The price competitiveness on these markets has consequently been improving since 2010. Nevertheless, the zloty recently enforced to these currencies.

Similar tendencies are shown by the real EME_NO_CR index. However, the scale of improvement in competitiveness is clearly larger.

In the twelve-month-long period, finished in July, export to the emerging markets increased by 10.6%. The participation of these countries in general export was 10.2%.

According to the classification of the International Money Fund, the emerging markets include also Russia and Ukraine. We do not include these countries in our analysis, due to their economic difficulties, because of which the shape of the EME index was very disturbed. Calculations containing these countries are presented in the report's summary.

Can Poland earn on the Chinese crisis?

Due to the Chinese crisis, the zloty strengthened in relation to the Asian currencies. Thanks to this, Poland can save money on importing goods from the Far East. This is a chance to decrease a huge trade deficit, which is currently more than 100 billion PLN.

The last few months brought real mood swings for the investors in China. At the beginning of June, Shanghai celebrated records (the SCI index was on the highest level since 2008). A while later it survived a serious breakdown. Up to now, the index of Shanghai has depreciated by approximately 40% in comparison to the highest level achieved in June. Furthermore, it is still very unstable.

At the beginning of August a publication of very weak data regarding foreign trade appeared. In July, the Chinese export of goods decreased by 8.3 percent year on year. The surprise was huge, because only a 1% depreciation was expected. On the other hand, imports from China decreased by 8.1%, which was accordant to expectations. The weak result of sales abroad reflected negatively in the trade balance. The surplus decreased to 43 billion dollars, less than expected 53 billion dollars.

In the second week of August, the People's Bank of China decided to devalue the yuan. The weakening of the Chinese currency had a few stages. As a result, the rate of yuan against the dollar, decreased to the lowest level since 2011. The central bank justified its decision with a will to reflect an impact of the market situation on the rate of the Chinese currency more accurately. However, it is difficult not to connect this movement to the increasing economic problems of China. This decision could also be influenced by a desire to improve the price competitiveness of export, which means lowering the prices of Chinese goods for foreign customers.

A huge deficit

China is one of Poland's most important trading partners, right next to Germany. In June, a share of goods bought from the Chinese producers was 11.3% of the whole of Polish import (data for a twelve-month-long period which finished in June 2015). On the other hand, export of Polish goods to China has a small significance. Only 1.1% of goods exported by Poland goes to the Chinese market. It is not much more than to Belarus, and definitely less than to Ukraine.

Unlike Germany, Poland has a huge deficit in trading with China. It has grown really fast, especially since the middle of 2014. Recently it reached 71.8 billion PLN. In July, it was by 21.8% higher than one year before. It was mainly a result of the zloty's wear off to the renminbi. At that time, Poland sold to China goods worth 7.5 billion PLN. Import from China exceeded export by 10.6 times.

Poland has a very big trading deficit with every Asian country included by Cinkciarz.pl in the index of the most important trading partners*. In the period of June 2014 and June 2015, it was 103.9 billion PLN. The relation of import to export was 8.5. Thus, the situation is only slightly better than in the case of China itself.

Poland wins on the crisis

Poland (next to Russia and India) is considered as one of the emerging markets. However, the recent events related to the Chinese problems and a breakdown of the prices of raw materials, do not concern us to the same degree as other countries from this group. Unlike the majority of Asian countries, Poland has minor export connections with China. Additionally, the record low prices of raw materials is good news for Poland, because it exports mostly these goods.

One of the consequences of this situation is a relatively stable rate of the zloty, in comparison to other currencies of the emerging markets. Moreover, the Polish currency enforced to the Asian currency pairs. Since the time of devaluation of the yuan, the zloty gained approximately 6% to the Chinese currency. The Cinkciarz.pl Index of Asian Countries, showed an increase in the zloty's value by almost 5% to the basket of the currencies from this region.

The contribution of the Asian countries to Polish export is almost 2%. Over half of this value is generated by China. The significance of import from these countries is definitely bigger, because it reaches 16.8% (contribution of China is approximately 70%).

The enforcement of the zloty to the Asian currencies means a chance for significant savings for Poland coming from a decrease in the costs of import. August's increase in value of the Polish currency itself, gives hope for a decrease in deficit in trade with the Asian countries by 2-3 billion PLN per year. This amount responds to 20-30% of last year's trading deficit. If the zloty manages to gain even more, the scale of profits may be bigger.

Clarification

In order to receive more detailed information, please contact:

Piotr Lonczak
Cinkciarz.pl analyst
Phone: +48 602 45 77 34
Email: [email protected]

Kalina Stawiarz
PR Specialist
Phone: +48 726 666 644
Email: [email protected]

Clarification regarding the data:

Calculations of the Cinkciarz.pl indexes are based on the changes in the currency rates of Poland's most important trading partners, in relation to the zloty. The significance of these particular currencies is estimated with the use of the GUS data regarding foreign trade. The significance is calculated on the level of the countries' baskets consisting of the 33 biggest trading partners in Poland. The real indexes include a difference in inflation between Poland and its most important trading partners.

The list of the 33 most important trading partners in Poland consists of those countries, whose contribution in export and import has been higher than 0.5 percent within the last 10 years. Those countries create the widest of Cinkciarz.pl indexes. Export to the countries from the MAJ_33 basket, crosses 90 percent of general export.

Data regarding the currency rates is supplied by Bloomberg. Data regarding the foreign trade is provided by the Central Statistical Office (GUS). Data about inflation is supplied by Eurostat for countries, which are part of the European Union. Data about inflation regarding other countries is provided by the national statistics offices.

For more detailed information regarding the methodology and selection of the countries to particular currency baskets, please contact Piotr Lonczak, Cinkciarz.pl Analyst.