Polish consumers finally cowed by Europe’s tale of woe

Poland should be euro-ready in 2015: President

WARSAW, Feb 26, (RTRS): Polish households’ hearty appetite for new cars, televisions and washing machines has helped pull the economy out of previous slumps, but in this downturn consumers are leaving their wallets at home.

Data on private consumption and consumer sentiment is so weak, in some cases the weakest since the end of Communist rule, that official forecasts that the economy will pick-up in the second half of this year are looking optimistic.

Most European economies have seen private consumption fall since the 2008 financial crisis, but the EU’s largest eastern economy stands out for several reasons.

The slowdown has arrived much later than in the rest of the continent, held off largely by demand from consumers whose living standards had been rising quickly since joining the EU in 2004.

The drop-off in consumption is severe and feels more painful for a country which needs to grow faster — and generally has done until recently — to reduce what remains a substantial wealth gap to its western peers.

Preliminary data shows that private consumption may have contracted in the fourth quarter of last year for the first time since the fall of the Berlin Wall in 1989.

According to business lobby group Lewiatan, real wages fell 0.1 percent in 2012, the first time since 1993.

Even the central bank, which has long held the view that the downturn would be short-lived, acknowledges the problem.

“There is this grey cloud floating from the West, slowly overshadowing the Polish economy,” said Marek Belka, the central bank governor. “And it is telling the Polish consumer ... be careful, go hide in some hole.”

In December, traditionally a strong month for store owners because of preChristmas shopping, retail sales took their deepest dive in almost 8 years, dragged down by falling sales of cars and books.

Consumer sentiment in January stood at 76 points, a touch above the previous month’s reading that was near a 20-year low.

“The Polish consumer now seems to be scared out of his mind,” says Danske Bank’s Lars Christensen, one of the most experienced commercial bank economists watching eastern Europe.

He and others say that Poles have finally lost their faith, ingrained by more than two decades of almost uninterrupted growth, that the economy will keep expanding.

Political debate in the country of 38 million has been dominated over the past year by warnings of a deepening downturn, filling domestic media with grim tidings. Unemployment is back on the rise.

“Poles have been bombarded with bad news for five years now and this is now taking its toll,” said Halina Kochalska from mortgage brokers and financial advisors Open Finance.

“It’s like a self-fulfilling prophecy. People are worried about what’s ahead and articles on the front pages of newspapers about mass layoffs at factories, like Fiat, or possible bankruptcy of big companies like the airlines LOT don’t help.”

There is also evidence that a boom in consumer credit seems to have reached a natural stopping point.

After expanding for most of the last 15 years, the overall stock of consumer credit — never mind that of new loans — has started falling; in all of 2012, Poles paid back a net 6.9 billion zlotys ($2.24 billion) in loans, leaving 132.1 billion outstanding.

As many as 66 percent of Poles now say they have at least one car in their household. About 86 percent have a mobile phone, over 90 percent own a washing machine, and half say they have a digital camera.

“A critical point seems to have been reached,” says Kochalska. “Demand for credit is falling and this year will be very difficult as well with no improvement in sight.”

Less than two decades after a transition from communism which left a fifth of the workforce unemployed, even younger Poles are still more experienced than their Western European peers at living for little.

Also: WARSAW, Poland: Poland should focus on meeting financial criteria to join the euro bloc by 2015 and only then decide whether to adopt the single currency, national leaders said Tuesday.

President Bronislaw Komorowski said the effort to meet conditions for the European Union’s common currency - such as low inflation and debt - would boost Poland’s economy and make it competitive.

It is crucial to have wide public support for the effort and to convince Poles that joining the euro would be a good thing, he said at a special meeting with the Cabinet of Prime Minister Donald Tusk.

Tusk stressed that Poland was “resolute” in its commitment to join the euro, but that it should take the step at the right time. Were the government to try to rush to meet the financial criteria, it may have to take abrupt measures to control inflation and debt that could hurt economic growth in the short-term.

According to Komorowski, trying to set the adoption date now would be “political hocus-pocus.”

The meeting was a key step in kindling public debate over euro adoption, for which there is expected to be a national referendum. Last week, lawmakers approved the EU’s fiscal compact, a set of rules that will limit public debt in the eurozone. The compact affects only the 17 euro zone members, but the vote indicated that Poland wants to have a say in EU matters.