Polish GUS – Central Statistical Office, government agency researching and collecting statistics related to the country’s economy and population published GDP data for III quarter of 2016. GDP – most important indicator pointing to a condition of economy nationwide, grew only by 1,8% year-to-year, worst result in last 3 years.
In the same 3 year period main Polish stock market indicator WIG20 fell from 2355 to 1941 points, by a -18%, which is possibly the worst result throughout European stock markets. In comparison, at the same time German DAX rose by +22%, French CAC40 by +14%, British FTSE by +7,5% and Chinese 50 + 13%. Even Poland contenders from the same region performed much better: Hungarian BUX soared since 1/2014 by a +30% and Slovak SKSM went up by almost +60%.
WIG20 chart – bad times for Polish stock market
Among causes of economic slump is a dangerously growing budget deficit, which will be record high of 60 billion PLN (about 14 bln USD). This amounts to 2,9%, so just 0,1% less than EU excessive deficit procedure. If Poland exceeds 3% deficit (very likely in 2017), European Commision will impose a fine on Poland which ends up as a international row between EU and Poland and which will further damage country reputation. Budget was strained under spending of “Family 500+” social program and lowering of the retirement age to 60 years for women and 65 for men, now lowest in Europe. Another reason is very low internal consumer spending coming from low income and even lower PPI in Poland.
Purchasing Power in Poland 2015. As you can see, Poles are the poorest people in the EU, except Romania and Bulgaria. Even other Eastern European countries like Czech Republic, Slovakia or Lithuania long ago have surpassed Poland in income and households earn much more there. (click to enlarge)
Another reason for outflow of capital is political instability. Under new government, Jarosław Kaczyński is an acting prime minister of Poland, holding most power in country. Businesswise he’s not the best for investors, because he doesn’t have any business experience and holds views on economy straight from previous, communist regime. He also wants to nationalize companies, by taking them over, as he actually did with largest Polish bank, calling it “re-polonisation”, whatever that means. Recently in a interview, he made a puzzling comment about worsening condition in economy, blaming entrepreneurs “associated with political opposition” for stalling business opportunities in Poland. In a way, he is similar to Hungarian Viktor Orban, however Orban isn’t scaring entrepreneurs and is much more sensible in his views on economy. Combining with political instability, this frightens potential investors and earns Poland a not the best reputation as stable country.
Jaroslaw Kaczynski is a person holding most power in Poland.
Will Poland recover?
Not likely. If you have access to CFDs on WIG20, short it for profits. Global economy is in very good condition, with almost every stock market making profit, and investors are moving to safer, more predictable and profitable markets like German DAX, US Nasdaq or Japanese Nikkei. Business doesn’t like political instability so there would be even larger ouflux of capital from WIG, resulting in continuous losses and ultimately – to major crisis in economy.
Demise of PLN
Alternatively, if you don’t have access to WIG (though most brokers offer this CFD) you can long USD/PLN or EUR/PLN currency pair. Polish Zloty is currently weakest since 2008, and it fell by 48% since that year, with continuous losses. It is very likely that PiS government will need to print money to cover social spending and growing budget deficit, which would drive PLN to even lower levels. I recommend selling PLN in currency pairs for easy and steady profit – if you would do that in last 3 years you would gain 35% on USD/PLN pair or about 6% on EUR/PLN pair. Faltering Polish economy will gradually step into full-fledged recession and thus will provide many investment opportunities in 2017 for speculators.
PLN/USD technical indicators and moving averages – note, that every moving average indicates that prices can only go down further in next weeks and months.