Information on the condition of the enterprise sector, including the economic climate in 9 Q2 and forecasts for 9 Q3 synthesis The report is based on the results of NBP quick monitoring carried out in June 9 on a sample of 824 non-financial entities representing all sections of the Polish Classification of Activities (PKD NACE equivalent) (excluding farming, fishing and forestry), both public and non-public sectors, SMEs and large entities. 1
In view of the results of NBP quick monitoring and the data of the public statistics, the following conclusions on economic climate may be drawn: After first weak signs of reversing downward trends noted in the forecasts for Q2 of 9, published in the previous Report, the enterprises forecasts for Q3 saw intensified signs of approaching recovery growth was observed in the majority of s. Despite growing optimism for the future, current assessments of the business climate remain weak. Improvement was observed in the predictions of economic situation, demand, employment, wages and, to a lesser degree, investment and credit availability; moreover, downward trend in prices eased and margins on the domestic market ceased to diminish. Improvement was noted both in the group of exporters and companies offering their products on the domestic market only. On the other hand, slight deterioration was reported in the debt payment capacity, margins on foreign sales ceased to grow and the expected duration of domestic economic slowdown extended. Low demand (despite its marked improvement), foreign exchange rate fluctuations, payment bottlenecks and difficulties in obtaining credit continued to be the main problems faced by the enterprises sector. 1. In the assessment of their own economic situation for Q2, the enterprise sector showed a slight rise in optimism for the first time in five quarters. Improvement was also noted in the forecasts of the situation for Q3 forecasts of improvement outnumbered slightly. Moreover, enterprises showed considerable optimism in the assessment of their profits for the whole of 9 overwhelming majority of the surveyed enterprises expect a positive net financial result this year 1. - - - 3 change y/y trend 4 6 7 Fig. 1 Current economic condition 8 9 % % % % % % 27, 72, fin.result F-1-8 6, 9, 8,4 23,3, 38,4 8, 61,6 76,7,4 27,6, fin.result forecast 9 net from sale - from sale - fin.result F-1-1 net fin.result F-1-8 net fin.result - forecast 9 significant losses little losses little profits significant profits Fig. 1 Financial result forecasts for 9 structure of responses in % against the structure of population of enterprises obliged to file F-1/I-1 GUS reports. 2. Despite the signs of recovery, the forecasted economic slowdown duration extended as compared with the forecasts presented in the previous quarter (yet, the forecasts 2
improved in relation to the previous month 2 ). These changes might have been driven both by changes in the enterprises own condition as well as by changing information (available, inter alia, in mass media) about the extent and the dept of the observed economic slowdown. - - - % 9% % % % % % % % % % 9,1 26,4 27,4 62,4,6 9,3,7 19,2 18,2,7 26,6 4, 9 & later good situation missing data IV- I-1 II-1 IV-1 I-2 II-2 IV-2 I-3 II-3 IV-3 I-4 II-4 IV-4 I- II- IV- I-6 II-6 IV-6 I-7 II-7 IV-7 I-8 II-8 IV-8 I-9 II-9 III'9 V'9 VI'9 Fig. 3 Economic condition forecast Fig. 4 Economic slowdown horizon 3. The assessments and forecasts of demand and new orders improved. As a result, the production forecast also increased and the fit of inventories to the needs of the surveyed enterprises improved, mainly as a result of depletion of excessive inventories of finished goods. Despite growth, demand assessments and forecasts remained at low levels. Persisting difficulties in finding customers point to further decline in capacity utilization. Yet, the scale of decline of this (after seasonal adjustment) was lower than in the preceding quarter. 3% 31% 27% 23% 19% % 11% 7% 3% Problems with demand Trend 3 - - - - - - trend IV-98 II-99 IV-99 II- IV- II-1 IV-1 II-2 IV-2 II-3 IV-3 II-4 IV-4 II- IV- II-6 IV-6 II-7 IV-7 II-8 IV-8 II-9 Fig. Low demand as a growth barrier (percentage of companies reporting problems with finding buyers for their products) I-1 1 I-2 2 I-3 3 I-4 4 I- Fig. 6 Forecast output index I-6 6 I-7 7 I-8 8 I-9 9 1 F-1/I-1 data suggest that in the previous stage of economic slowdown (in 1) a positive net financial result was generated by much fewer enterprises, namely 62% of enterprises. In 9, % of the surveyed enterprise expect to generate net profit. 2 In the period April May 9, the NBP Annual Survey (launched in 199) was conducted, which included also the question to assess the duration of economic slowdown. Forecasts formulated in this period pointed to a steep decline in optimism as compared with the forecasts formulated in March 9 in the NBP Quick Monitoring. 3
4. Improved outlook for demand was reported by both exporters and enterprises selling their products on the domestic market only. Yet, the assessments of the current export sales showed only a slight improvement, and the balance of these assessments remains negative, i.e. companies reporting exports decline prevail in the sample. Still, the outlook for export sales improved for the second consecutive quarter, which might be connected with the dynamic search for new markets 3. Also the weak currency, which has a positive impact on price competitiveness of the domestic production, is favourable for exporters. - - - - - 1q2 1q4 2q2 2q4 3q2 3q4 4q2 Export orders Trend 4q4 q2 q4 6q2 6q4 7q2 7q4 8q2 8q4 9q2 4. 4 3. 3 2. Export orders s.a. Euro exchange rate Fig. 7 Index of new export contracts and Euro exchange rate 2 4. 4 3. 3 2. - - 2 1q1 1q3 2q1 2q3 3q1 3q3 4q1 4q3 q1 q3 6q1 6q3 7q1 7q3 8q1 8q3 9q1 9q3 Export forecast Export forecast Trend Euro exchange rate Fig. 8 Export forecast and Euro exchange rate. The group of specialized exporters reported further rise in profit margins on foreign sales which was primarily explained by the favourable exchange rate of the zloty against foreign currencies. On the other hand, non-specialized exporters noted a decline in margins which was explained by declining demand and rising production costs. In the group of domestic market oriented enterprises, the downward trend in profit margins, observed since the end of 8, eased. Specialized exporters, which were hit by the crisis in the international markets in the first place and suffered the most severely (which was visible in their worsening situation), reckon with the possibility of incurring losses in 9 more frequently than other companies. Yet, also this group is observing signs of recovery. 3 This is suggested by the results of the NBP Annual Survey, which shows that about % of surveyed enterprises adjust to the economic slowdown by searching for new markets. 4
- exporters with low share of export exporters with high share of export -,4 3,9,7 7,3-11, 4,8 4,6 4,4 4,2 - -27, -24,1-22,9 - -27,1 -, - -38,7-48,3 - I-8 II-8 8 IV-8 I-9 II-9 Fig. 9 Changes in margins on foreign sales exporter with high share of export exporters non-exporters Euro exchange rate 2 IV-2 I-3 II-3 3 IV-3 I-4 II-4 4 IV-4 I- II- IV- I-6 II-6 6 IV-6 I-7 II-7 7 IV-7 I-8 II-8 8 IV-8 I-9 II-9 Fig. Current economic condition in the group of exporters and non-exporters (Manufacturing) 4, 3,8 3,6 3,4 3,2 6. Improvement was observed in the forecasts of employment the number of respondents planning to increase employment grew, and the number of enterprises intending to reduce employment declined. Yet, companies reducing their staff continue to prevail in the sample. Staff reduction plans are mostly announced by enterprises in good economic situation and by companies whose production capacity utilisation is close to maximum. Plans to increase employment are mainly announced by service companies from the section Real estate services and Hotels and restaurants. Employment forecasts also improved in Manufacturing, yet staff reduction plans in this group continue to prevail. - - - - - IV 1 I 1 II 1 III 1 IV 2 I 2 II 2 III 2 IV 3 I 3 II 3 III 3 IV 4 I 4 II 4 III 4 IV I II III IV 6 I 6 II 6 III 6 IV 7 I 7 II 7 III 7 IV 8 I 8 II 8 III 8 IV 9 I 9 II 9 III Fig. 11 Employment forecast - - - - - Construction_ Industry_ Services_ IV 1 I 1 II 1 III 1 IV 2 I 2 II 2 III 2 IV 3 I 3 II 3 III 3 IV 4 I 4 II 4 III 4 IV I II III IV 6 I 6 II 6 III 6 IV 7 I 7 II 7 III 7 IV 8 I 8 II 8 III 8 IV 9 I 9 II 9 III Fig. 12 Employment forecast in the section Construction, Industry and Services 7. Slight improvement was also noted in wage forecasts, mainly due to much less frequently expected wage cuts than in the previous quarter.
4 3 % of enterprises % of enterprises_ % of the employed_ 9_3 3, 9_2 4,6 9_1 8_4 8_3 8_2 8_1 7_4 7_3 7_2 7_1 6_4 6_3 6_2 6_1 _4 _3 8,46 79,2 74, 86,2 7, 6,4 46,9 76,7,6 64,,1 86, 8,3 7,9 72,3 93,6 91,4 16,6 13,4 9,,64,74,16 7,,4 6,8 17,2 1, 6,6,31,8,7,2 3,7,9 9,3 28,2 8,3 11,1 6,2,8 13, 12, 12,2 19,,3 8,, 17, 21,9,9 6,3 3,1 2,6 1,3,8,6 1,1 1,2,8 6,1,4 I II III IV 6 I 6 II 6 III 6 IV 7 I 7 II Fig. 13 Proportion of enterprises planning wage increases and proportion of employees benefiting from wage increases 7 III 7 IV 8 I 8 II 8 III 8 IV 9 I 9 II 9 III % % % % % % % % % 9% % decrease no increase/changes since 9Q2 increase up to % increase <-%) increase % and over Fig. 14 Structure of planned wage changes (employment weighted data; questions about wage decreases were asked for the first time in the 9 Q2 survey) 8. Investment activity in the enterprises sector remains very low, yet also this area recorded a slight improvement, translating primarily into lower number of companies which give up completing investment under construction. Interest in new investment projects increased only slightly and remained below the level observed in the years 1-2. Low investment activity is observed not only in the case of enterprises in bad economic condition, but also companies in good condition, which may be connected with uncertainty about changes in the economic situation and increased cautiousness while planning expenditure during the economic slowdown. 9 9 Investment continuation 4 8 3 7 The share of investors 6 1 2 3 4 6 7 8 9 1 2 3 4 6 7 8 9 Fig. Investment continuation Fig. 16 New investment 9. Assessments of liquidity and debt payment capacity, including capacity of timely bank debt payment deteriorated for another consecutive quarter. Also the period of payment of liabilities and receivables extended. Yet, the deterioration in liquidity and debt payment capacity is not dramatic, and current assessments are better than in the years 1-2. 6
- - - - - 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 6 7 8 9 no problems frequent problems occasional problems balance (no problems - any problems) Fig. 17 Share of enterprises reporting problems with maintaining financial liquidity 96 94 92 9 88 86 84 82 78 76 74 trend 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 1999 1 2 3 4 6 7 8 9 Fig. 18 Share of entities making loan repayments in accordance with loan contracts. The percentage of enterprises planning to increase debt by extending their bank credit decreased for another consecutive quarter despite slight improvement in loan availability. - - - - - - I-3 3 I-4 4 I- I-6 6 I-7 7 I-8 8 I-9 loan debt forecast employment-weighted loand debt forecast seasonally adjusted loan debt forecast trend in loan debt forecast 9 8,7 9, 14,1 16,2, 33,3 31, 31,3,9 39,7, 43,8 36,7,1 28,3,4, 31,3 27,4 13,,3 14,2 18,6 9, 4,7 44,1 33,3 28,4 29,3 21,9 I-8 II-8 8 IV-8 I-9 II-9 % enteprises applying for a loan % loan refusals % of loan refusals owing to circumnstances beyond control % of loan refusals owing to lack of creditworthiness % of loan refusals owing to lack of collateral Fig. 19 Loan debt forecast Fig. Share of enterprises applying for a loan and percentage of enterprises refused the loan (in the sample of enterprises applying for a loan) 11. The number of loan refusals was lower than in the previous quarter with higher number of enterprises applying for a loan. Yet, the number of enterprises which faced a loan refusal for reasons unrelated to their economic condition (i.e. due to unfavourable assessment of the business sector s situation) diminished. On the other hand, the number of loan refusals resulting from the lack of creditworthiness and the lack of relevant collateral increased. Problems with obtaining a loan are often faced by enterprises which have already been refused bank financing. This may be one of the reasons why problems with obtaining a loan are increasingly often considered as a growth barrier for the enterprise sector. 7
3, 2, 2, 1, 1,, average prices 4, 3, 3, 2, 2, 1, 1,,, 1999 I 1999 III I III 1 I 1 III 2 I 2 III 3 I 3 III 4 I Fig. 21 Average expectations of quarter-on-quarter rise in prices of products and services offered by enterprises 4 III I III 6 I 6 III 7 I 7 III 8 I 8 III 9 I 9 III 1999 I 1999 III I III 1 I 1 III 2 I 2 III 3 I 3 III 4 I 4 III I III 6 I 6 III 7 I 7 III 8 I 8 III 9 I prices of raw materials Fig. 22 Average expectations of quarter-on-quarter rise in prices of raw materials used by enterprises 9 III 12. Along with stronger signs of economic recovery, the number of enterprises planning to decrease prices diminished considerably (in the last half-year period this number was the highest in the survey history). As a result, after five quarters of decline, the average of planned price changes increased slightly. The intention to decrease prices is less frequently announced by domestic market oriented enterprises; consequently, in this group the drop in the number of enterprises planning price decreases was deeper than in the group of exporters. These developments were accompanied by a further decline in the forecasted growth rate of prices of commodities and raw materials and weakening inflationary expectations. Thus, price growth was not only the effect of the expected cost increase. 8