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The Zloty Index by Cinkciarz.pl. August 2015. Part 2

, author:

Piotr Lonczak

The zloty has returned to the hikes from July. As a result, the price competitiveness of the export fell almost on all markets. Such unfavorable tendencies are visible on the Scandinavian and Central-European markets. The Polish currency remains relatively strong in a several years perspective.


The description of the index in detail

The most important trade partners (wide index): The Cinkciarz.pl MAJ_33 Index

In July the nominal Cinkciarz.pl MAJ_33 index increased by 0.9 compared to last year. This situation has got worse since last month – then it was 0.6 percent.

The real index shows that there has been an improvement in the competitiveness of Polish export. In July, the index including the difference in inflation was lower by 2.2 percent, compared to last year, and minus 2.6 percent compared to last month.

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Chart: Index MAJ_33 Chart: The Real MAJ_33 Index

Since 2012 the zloty has remained in the upward trend. The strengthening of the zloty in July means that this tendency is now stronger.

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Chart: Change of indexes (year on year) Chart: Change of indexes (month on month)

The real index shows a relative stabilization of the zloty rate with a tendency to drop. The MAJ_33 index is getting further away from the highest levels of 2014.

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Chart: Export to MAJ_33 countries year on year(in percent); Data: GUS; Description: Cinkciarz.pl Chart: Share of the MAJ_33 counties in export (in percent); Data: GUS; Description: Cinkciarz.pl

In the 12-month-period finished in May 2015, the export to the markets of the 33 most important trade partners increased by 3.9 percent compared to last year. The share of the most important trade partners in export is now 90.8 percent.

The most important trade partners (narrow index): The Cinkciarz.pl MAJ_16 index

In July the nominal Cinkciarz.pl MAJ_16 index increased by 1.2 percent compared to last year. In relation to last month the situation got worse – it was 0.7 percent.

However, the real index shows that now is the time for competitiveness improvement of Polish export. In July the index including the difference in inflation was lower by 2.3 percent compared to the year before.

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Chart: MAJ_16 Index Chart: The Real MAJ_16 Index

Much like in the case of the MAJ_33 Index, the MAJ_16 index remains close to the several-year-high. The index in the first part of the year reached the highest level since 2011.

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Chart: Change of indexes (year on year) Chart: Change of indexes month on month)

The real index does not show such high levels. However, it allows noticing the appreciation of the zloty which has lasted since 2012. However, recently the upward trend wasn’t as strong.

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Chart: Eksport do krajów MAJ_16 rok do roku (w proc.); Dane: GUS; Opracowanie: Cinkciarz.pl Chart: Udział krajów MAJ_16 w eksporcie (w proc.); Dane: GUS; Opracowanie: Cinkciarz.pl

In the 1-month-period, finished in May 2015, export to the markets of the 16 most important trade partners rose by 4.6 percent compared to last year. The share of the most important trade partners, who are a part of the narrow index in the export, is 75.9 percent.

Key trade partners: the Cinkciarz.pl MAJ_7 index

In July the nominal Cinkciarz.pl MAJ_7 index was higher by 1.3 percent compared to last year. It means that the situation is worse than last month, when this dynamic was 0.8 percent.

The real index shows that this is the time of the increasing competitiveness of the Polish export. In July the index including the difference in inflation was lower by 1.5 percent compared to last year.

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Chart: The MAJ_7 Index Chart: The MAJ_7 Index

Much like the MAJ_33 and MAJ_16 indexes, the MAJ_7 index remains close to the several-years-high. The index reached the highest level since 2011 in the first part of the year.

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Chart: Change of indexes (year on year) Chart: Change of indexes (month on month)

The real index does not show such high levels. However, it quite accurately depicts the appreciation of the zloty which has lasted since 2012. The scale of this phenomenon is smaller than in the case of the wider indexes.

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Chart: Export to the MAJ_7 countries year on year (percent); Data: GUS; Description: Cinkciarz.pl Chart: Share of the MAJ_7 countries year on year (percent); Data: GUS; Description: Cinkciarz.pl

In the 12-month-period, finished in May 2015, the export to 7 of the most important trade partners rose by 4.8 percent compared to last year. The share of the key trade partners, who are a part of the index was 54.3 percent in export altogether – no changes compared to last month.

The countries of the East and Central Europe: The Cinkciarz.pl CEE Index

In July the nominal Cinkciarz.pl CEE Index rose by 15.3 percent compared to last year. This means that the situation got worse compared to last month, when the index was 14.2 percent.

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Chart: The CEE Index Chart: The Real CEE Index

After the relative stabilization of the situation in the recent months, the zloty gets back to clear gains. This means that the strong zloty is still a relevant obstacle for the exporters in the months to come in relation to the CEE countries.

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Chart: Change of the indexes (year on year) Chart: Change of indexes (month on month)

The CEE index has increased compared to last month. This means coming back to the upward trend.

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Chart: Export to the CEE countries year on year (percent); Data: GUS; Description: Cinkciarz.pl Chart: Share of the CEE countries in export (percent); Data: GUS; Description: Cinkciarz.pl

Export to the Central and Eastern Europe markets has had negative dynamic for 7 months now. In the 12-month-period finished in May, the fall was 3.3 percent in relation to an analogic period last year. The scale of the fall is bigger each month. The share of Central and Eastern Europe went down by 22.5 percent against the 22.7 percent the month before.

The countries of the Central and Eastern Europe (no countries in crisis): the Cinkciarz.pl CEE_NO_CR Index

In July the nominal Cinkciarz.pl CEE_NO_CR index was lower compared to last year by 0.6 percent. This index does not include the countries which are undergoing a crisis at the moment – that is, Russia, Ukraine and Belarus. Compared to last month the situation has got better (in May the dynamic was at the level of minus 0.3 percent).

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Chart: The CEE_NO_CR Index Chart: The Real CEE_NO_CR Index

A closer look at the CEE_NO_CR index shows that the zloty is still strong against many currencies from the region, despite the certain improvement lately. The zloty is now close to its highest level against the currencies of the region since 2009. This shows that the source of the fall of the Polish export competitiveness in the region is not just the currency crisis of Russia, Ukraine and Belarus.

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Chart: Change of indexes (year on year) Chart: Change of indexes (month on month)

Despite the fact that the dynamic in July was negative, similar tendencies are shown by the real CEE_NO_CR index. Even when the difference in inflation is included it is clear that in the last couple of years there has been improvement against the currencies of the region.

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Chart: Export to the CEE_NO_CR countries year on year (percent); Data: GUS; Description: Cinkciarz.pl Chart: Share of the CEE_NO_CR countries in the export (percent); Data: GUS; Description: Cinkciarz.pl

In the twelve-month-period, finished In May, export to the markets of Eastern and Central Europe minus Russia, Ukraine and Belarus increased by 7.6 percent compared to last year. The overall share of the countries from this basket in export is 16.3 percent – no changes compared to the last few months. Even though the pace of export growthto the countries of Central and Eastern Europe is relatively high, the dynamic remains quite modest compared to recent years.

The Scandinavian countries: The Cinkciarz.pl SCAN index

In July the nominal Cinkciarz.pl SCAN index was higher by 2.1 percent compared to last year. The situation got slightly worse when compared to last month – then the dynamic was at 1.9 percent.

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Chart: The SCAN Index Chart: The Real SCAN Index

The SCAN index shows that the zloty is currently very strong compared to the currencies from the Scandinavian countries. The zloty is currently close to its highest level since 2010. It can be anticipated that the strong falls on the market of crude oil will result in further spoiling of the competitiveness of Polish export prices in this region because of the pressure on the Scandinavian currencies.

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Chart:c Change of indexes (year on year) Chart: Change of indexes (month on month)

The same tendencies can be seen when observing the real SCAN index. The competitiveness of the Polish export on these markets was worse, especially in the recent quarters. The real SCAN index shows growth.

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Chart: Export to the SCAN countries year on year (percent); Data: GUS; Description: Cinkciarz.pl Chart: Share of the SCAN countries in the export (percent); Data: GUS; Description: Cinkciarz.pl

In the twelve-month-period, finished in May, the EME_NO_CR was lower by 7.7 percent compared to last year. When compared to last month this situation has improved – the dynamic was minus 7 percent at the time. This index includes emerging markets countries minus Russia and Ukraine.

Emerging Markets: The Cinkciarz.pl EME_NO_CR Index

In July the nominal Cinkciarz.pl EME_NO_CR index was lower by 7.7 percent compared to last year. In comparison to the last month the situation was improved - the dynamic was minus 6 percent at the time. This index contains the countries regarded as emerging markets minus Russia and Ukraine.

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Chart: The EME_NO_CR Index Chart: The Real EME_NO_CR Index

The EME_NO_CR index shows that the zloty is currently very weak compared to the emerging markets countries. The price competitiveness on these markets has been improving constantly since 2010.

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Chart: Change of indexes (year on year) Chart: Change of indexes (month on month)

Such tendencies are shown by the real EME_NO_CR index. However, the scale of the competitiveness improvement is clearly bigger.

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Chart: Export to the EME_NO_CR countries year on year (percent); Data: GUS; Description: Cinkciarz.pl Chart: Share of the EME_NO_CR countries in the export (percent); Data: GUS; Description: Cinkciarz.pl

In the twelve-month-period, finished in May, the export to the emerging markets countries rose to the level of 10.4 percent after going up by 9.3 percent the month before. The share of the countries from this basket raised to the level of 10.2 percent. For another month the improvement of the price competitiveness is represented in the export growth.

According to the classification of the International Monetary Fund, Russia and Ukraine are also included in the emerging market basket. These countries are not included in this analysis because of the economic difficulties they are undergoing which strongly disturb the EME index. The calculations including these countries are presented in the summary.


The strong zloty influences the trade balance negatively

The zloty strengthening is unfavorable to the trade balance. The Polish currency is growing faster compared to the export countries rather than to the import countries. As a result, maintaining the trade surplus is threatened.

Since the beginning of the political transformation in 1989, Poland’s aim is to become an export country. An inspiration to it is the economic growth of Germany, built on the strong position of the export companies all over the world. Because of this many politicians and economists are certain that copying the economic model of Poland’s Western neighbour would open a path to an equally high level of living.

After a temporary drop, the export value during the world crisis (2008), selling goods abroad has been raising constantly since 2009. Poland is a top European exporter of cards and components for the automotive sector. We have a strong position as a provider for the electromechanical industry products. Also food export is becoming more and more important. The years following the crisis have shown that the Polish entrepreneurs managed to adapt to difficult conditions and were able to make a strong competition to the worldwide companies not only by their prices, but also with product quality.

The success would be even bigger if the zloty rate was more favorable to the companies. The Cinkciarz.pl Zloty Index shows, that the Polish currency has been strengthening against its most important trade partners since 2012 and the trade deficit is steadily decreasing. The raising zloty rate weakens the price competitiveness of export, which makes the Polish products more expensive for clients abroad.

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  • The Cinkciarz.pl Zloty Index compared to the key export and import partners (year on year). Source: Cinkciarz.pl

Since the middle of 2014 the value of the zloty has been raising relatively slowly compared to the currencies of the countries who are Poland’s key trade partners (green line). Moreover, the zloty has strengthened at a faster pace in relation to the currencies from the countries to which Poland is exporting (bordeux line).

This means that the prices of the Polish products for the foreign clients have gone up quite quickly, which might lead to a drop in sales. From the perspective of the Polish companies, the price of the products purchased on foreign markets are decreasing at a slower pace.

In the first five months of 2015 Poland reached a trade surplus at the level of 11.96 billion PLN. In a sense, this success was an outcome of the crude oil prices drop on the global markets. According to the Polish National Bank, the value of imported oil fell to the level of 8 billion PLN in the first quarter, compared to 14.3 billion last year. However, it was the increasing input of the local exporters that was key to reaching the trade surplus.

Due to the zloty having a negative impact on the foreign trade balance since the middle of 2014, the pace of the deficit reduction has gradually decreased. However, the exporters still managed to reach a positive trade balance. This is a good testimonium of their strong position on the global markets. If this tendency is maintained, then the chance for keeping the surplus of the export over the import will be small.

Today it is clear that the high zloty rate is an obstacle for exporters. In the last several months sales in Scandinavian countries and Central and Eastern Europe have fallen significantly. At the same time, the benefits of the increasing value of the zloty in relation to the countries to which Poland exports goods is not big enough to compensate for the potentioal losses caused by the possible decrease in export. The best representation of it is the situation with petrol prices, which are failling all over the world. Despite the fact that the prices are at a five-year-low, in Poland the petrol has become more expensive lately.

After a temporary weakening, the Cinkciarz.pl Zloty Index strengthened again. This was accelerated by resolving the crisis in Greece. At the beginning of July, Athens settled for the reforms in exchange for the help program. Thanks to this, the country avoided exiting the eurozone and the zloty strengthened again.

The success of Polish exporters on the global markets are unfortunately wasted by the unfavourable zloty rate. Along with the Polish currency exchange rate going up, the chance of maintaning the trade surplus is decreasing. As a result, the economic growth does not represent the achievements of the Polish entrepreneurs. Thus path to the German prosperity based on the export is getting harder.


Clarification

In order to receive more detailed information, please contact:

Piotr Lonczak
Cinkciarz.pl analyst
Phone: +48 602 45 77 34
Email: pl@cinkciarz.pl

Kalina Stawiarz
PR Specialist
Phone: +48 726 666 644
Email: kst@cinkciarz.pl

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.


See part 1 of the report

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without the written permission from Cinkciarz.pl Sp. z o.o is prohibited.

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