The thing with Poland and the current world crisis is that you could assume Poland should not be affected at all. Banking industry has been healthy, local regulations never allowed the American style sub-prime or similar derivatives. Mortgages were granted to those who met reasonable criteria. The banks are in good condition.
So how come it actually is somewhat affected? Like the Warsaw Stock Exchange loosing 50% on its main index, or Polish zloty loosing 40% to the euro…
The financial crisis turned into trouble of ‘real economy’ in the US, and especially Poland’s main trade partners: Western Europe and Russia. Bad news from over there quickly turn to even worse news for Eastern Europe, where export in almost every country in the region has a huge impact on their GDP. In the Czech Republic, for instance, export stands for 70% of GDP. Poland is in much more comfortable situation with just 30%. But still.
Again – compared with other countries in the region – Poland seems to be in good position. With low inflation rate, foreign debt under control, and – still – predictions of GDP growth (unlike many countries in recession).
So errrmmmm… what’s wrong then?
Large chunk of investment in Poland, is foreign investment. In times of crisis some foreign players might want to withdraw their money from the region. Especially – hearing about the trouble of other countries in the region, and assuming similarities with Poland. Or wanting to use their money to aid their own economies.
Many of Western governments plan to infuse their economies with loads of cash to get things moving. Of course they will borrow the cash. These countries are perceived to be secure and thus attract investors, who buy their bonds. Also with the money withdrawn from places like Poland. This might also cause a decrease of interest in the Polish government’s bonds, which will have to guarantee a higher profit to attract buyers. (Unless the EU will guarantee them as currently proposed).
Effects of the withdrawals? Warsaw Stock Exchange index fell 44% in the last 6 months shuttering dreams of many Polish families, as stocks have become a popular investment during the recent boom. Some of the main companies at WSE, like Lotos – petrol and oil producer, experienced stock prices drop by 70%.
Another thing that is causing Poland a lot of headache at the moment is the euro (or the fact that we don’t use it yet). Polish zloty has weakened considerably (with Euro at 4,89 on Wednesday), as investors pulling their money from Poland, sell zlotys. High prices for Swiss Franc, in which most mortgages are denominated raised eyebrows. The rise of monthly payments and threat of mortgage problems urged the government to intervene and exchange unspecified amount of euro from EU structural funds. This reversed the trend, and weakened euro to 4,68 per zloty on Thursday. Although there are reports Poland would not have enough money to withstand a speculative attack and defend zloty – if such need occurred. Many point to the fact that if Poland were in the Euro zone, like Slovakia, this problem would not be. However the euro is a political issue for the EU-sceptic largest opposition party. And now there is no consent if this is the best moment to push this project ahead anyway.
Global speculation is out desperately hunting for profits. In times like these, they seek to make money playing where and how they can, for instance bidding lowering indices, and weakening currencies. Which worked for Poland’s loss this week.
There is however no cause for grave concern. In Poland business is as usual. In the long run Polish economy has stable foundations. Current problems will only lower the speed of growth a bit causing some problems or needs for adjustments here and there. At the end of the day, comparing with others, Poland seems to be the best place in the world to lie low and wait for the hurricane to pass.
UPDATE (same day afternoon)
Goldman Sachs investment bank admitted in a statement to its clients that it has speculated with Polish zloty, and announced that it has finished trading with Central European currencies. It played to weaken them – but now, the statement says, this strategy cannot be used any more, as playing to weaken zloty has become too risky. According to the bank, zloty cannot be expected to weaken any more. Goldman Sachs says that Polish currency weakened much more than they anticipated, and they think it is now undervalued.