The Forward Looking Indicator (WWK), which provides advance information on future trends in the economy, unexpectedly rose by 2.4 points in October. This is a significant jump, given the stagnant trends that have been entrenched in recent months. The increase in the index was due primarily to a significant acceleration in the money supply and an increase in household credit debt. On a slightly smaller scale, businessmen’s assessments of the economy’s development prospects improved, which should be directly linked to their pre-election hopes. The other components did not change much.
All indications are that the increase in the index is a consequence of two factors: the NBP’s expansionary policy and the extraordinary interest in the “2% safe credit” credit action. According to the BIK, in September alone, banks granted more than 18,000 housing loans, an increase of more than 170% in a year. The average value of the loan granted also increased, and the creditworthiness of potential borrowers improved as a result of the reduction in interest rates.
Money supply data indicate a gradual recovery in potential consumer demand. Households are steadily increasing their savings, at a double-digit rate, similar to the rate of wage growth. At the same time, retail sales results indicate that consumers are holding back on purchases. In an environment of falling inflation, this is a commonly observed phenomenon. While in response to accelerated price increases, consumers generally accelerate their purchasing decisions, in conditions of declining inflation, these decisions are postponed in anticipation of lower prices in the future. This happens even when the rate of price growth is positive all the time. However, such accumulated demand cannot be deferred indefinitely, especially in conditions of falling interest rates. It is generally released in the form of increased purchases over the next six months.
As a consequence of monetary easing and increased mortgage demand, one can count on a recovery in personal consumption in the short term, as well as increased activity by housing-related companies. However, there are strong constraints in the construction industry, if only in the availability of labor, which will likely lead to an increase in wages in this industry. At the same time, non-wage costs in all industries, including construction, are rising and will continue to do so. As a result, this could trigger further increases in real estate prices, a rebound in inflation and a rapid slowdown in the short-term recovery.
This is all the more so given that the signs so far of an imminent recovery in industry are rather weak. The rate of inflow of new orders to manufacturing companies in monthly terms did not change significantly. On an annual basis, one can speak of a relative improvement, consisting of a lower percentage of companies believing that their order portfolios are shrinking than a year ago. This phenomenon applies to both the overall order backlog and orders carried out for export. The worst situation is observed in the leather, wood and furniture industries, as well as in most companies producing durable consumer goods. It is worth noting that, as a result of the monopolization of the oil processing sector, the CSO has not published any quantitative data on this area of activity for a year, while recently it has also been excluded from economic surveys. Thus, economists have been deprived of important information on companies whose activities significantly affect other sectors of the economy.
In manufacturing companies, assessments of the state of finances at companies have been improving somewhat since June this year. The companies owe this improvement primarily to sharp cuts in those costs over which they have influence. This is confirmed by CSO data on the development of revenues and costs in the business sector for the first half of this year.
Author: Maria Drozdowicz – BIEC
