The Economic Outlook Index (WWK), which provides advance information on future trends in the economy in March 2023, fell 0.8 points from its January and February values. The slight improvement in the index at the end of last year was incidental, and did not solidify the signals that would herald a possible recovery. The economy continues to decelerate, demand is shrinking, high inflation and uncertainty are hampering business activity and limiting companies’ investment plans and household purchasing plans.
Of all the components of the WWK, the most worrisome is the renewed decline in the pace of new orders flowing into the manufacturing business sector. Orders are falling most sharply in the group of companies producing durable consumer goods, a direct consequence of shrinking domestic demand. This, in turn, has been curtailed by exceptionally high and persistent inflation. In almost all industries, with the exception of oil processing, and among the typically export-oriented industries – in the automobile industry, opinions about the shrinking inflow of new orders prevail.
Despite a significant reduction in the scale of industrial production, as we have seen for nearly a year, unsold goods are increasing in companies’ warehouses. The increase in inventories of finished goods in March this year was exceptionally strong. This means that production will be steadily reduced in the near future.
Entrepreneurs report a deteriorating state of their finances. Last autumn saw a slight periodic improvement in the financial situation in the industrial processing sector. This was a time when companies were severely cutting costs, which were directly influenced by them. Unfortunately, since the beginning of this year, as a result of both a renewed increase in a number of cost categories and a contraction in sales revenues, companies’ financial performance has been deteriorating again.
As a consequence of the decline in demand, production volumes and sales revenues, the assessments of the overall situation in the economy expressed by company managers are also deteriorating. The advantage of pessimists over optimists is more than 14 percentage points. The smaller the company, the worse the assessments of the current state and the prospects for the coming months. The biggest problem for companies is the uncertainty of the economic situation, as indicated by more than 60% of respondents. This high state of uncertainty has persisted among business managers since 2020, the start of the pandemic. The second most frequently cited factor limiting business activity is insufficient demand. It is indicated by about 40% of respondents (compared to 30% a year ago).
The decline in the M3 money supply in real terms slowed somewhat in February. A similar phenomenon was observed in the case of household credit debt. However, the slight increase in bank debt applies only to cash loans; mortgages continue to fall. The increase in cash loans is indicative of households’ problems with current expenditure financing.
The Warsaw Stock Exchange went into a slump in March, mainly due to panic over bank failures in the US and Europe. However, the recovery of the Warsaw stock market from the second half of last year was modest. The weakness of the domestic stock market is that it has lost its ability to finance the growth of companies and the number of companies listed on it has been decreasing year after year (currently 416 companies are listed, in 2015 there were 487).
Source: BIEC – biec.org
