BIEC: Entrepreneurs struggle to survive
The Economic Outlook Index (Wskaźnik Wyprzedzający Koniunktury - WWK), which provides advance information on future trends in the economy in November 2022, has not significantly changed its value compared to the previous month. It is now at a level more than 14 points lower than a year ago, while it has lost more than 16 points from its last local peak in July 2021. The periodic halt in the index's decline does not mean that the situation is improving. It only indicates the adjustment processes taking place in the economy, and above all the struggle of entrepreneurs to survive in conditions of dramatically rising operating costs and shrinking demand.
Of the eight components of the index this month, two improved from the situation a month ago, three components were little changed, and three worsened.
After a year of almost uninterrupted declines in stock indexes on the Warsaw Stock Exchange, October and November brought a slight rebound. In November, the real values of the WIG rose by almost 13%. For the time being, this is a very small positive change, and the real valuations of companies listed on the Warsaw Stock Exchange are now lower than they were during the "Kovid collapse." The improvement in investor sentiment is too short-lived for now to take this recovery as a harbinger of the end of the stock market slump and the end of the slowdown in the economy.
Another component of the WWK that improved in November relates to the assessments of the state of the finances of companies in the industrial processing sector by the managers of these companies. Deeply negative assessments still prevail, reporting a deterioration in the state of finances at companies, but the prevalence of these negative assessments has decreased slightly compared to October 2022. Two factors probably contributed to this: the drop in raw material prices on world markets, which allowed slightly cheaper purchases of raw materials necessary for production, and the actions of entrepreneurs to reduce any costs that companies have influence over and can be reduced. While, the CSO's quarterly data on revenue and costs at companies for the first three quarters of this year show a deterioration in the revenue-cost ratio, there was a slight improvement in the business survey for November this year. It is difficult to assess at the moment to what extent companies' cost-saving measures will prove effective following the implementation of the increases in electricity and gas prices and the increase in the minimum wage announced starting in the new year, while demand is shrinking.
A recovery in demand can hardly be counted on for the time being. The inflow of new orders remains at a very low level, where the advantage of the percentage of companies experiencing a decline over the percentage of companies reporting an increase in orders is 23%. Companies both producing for the domestic market and those supplying foreign markets are complaining about the decline in demand. This is confirmed by data on retail sales and production volumes, which have been falling in real terms and net of seasonal factors since May this year. Inflation is effectively reducing demand, which has been the main driver of economic growth in recent years.
Assessments of the overall economic situation continue to be at a very low level, far worse than the mood during the 2008-09 global recession. The main source of this bad mood is uncertainty, which is cited by more than 66% of executives surveyed by the CSO. In second place, employment costs are cited, as indicated by 53% of those surveyed. Only in third place is cited insufficient demand -39% of respondents.
Real M3 money supply has been weakening for nearly a year. Household credit debt is also falling. Consumers, in an environment of rising interest rates and additional tightening of credit criteria, are not interested in loans. This is particularly true of mortgages. Their collapse will certainly translate into a downturn in the construction industry.
Source: BIEC
