Poland’s balance of payments data for October surprised slightly positively. The current account showed a significant surplus (2 billion euros, compared to 400 million euros in September). It was close to our forecast and slightly above consensus. Surpluses in merchandise trade (€1.3 billion, up from €800 million in September) and services (€3 billion, same as the previous month) offset shortfalls in primary income (€1.9 billion ) and secondary (400 million euros). In cumulative terms of the last 12 months, we estimate that the current account surplus improved to 0.8% of GDP in October from 0.6% the previous month. At the same time, the positive goods balance improved from 0.2% of GDP to 0.7% of GDP, respectively.
The key factor affecting the current account balance in October was a marked improvement in the negative primary income balance. This balance is made up of income from direct, portfolio and other investments. We estimate that the greatest improvement occurred in the balance of direct investment income, which consists of reinvested profits, dividends and interest on debt instruments. Following the pattern of previous years, October was generally a month with lower dividend payments to foreign owners. CSO data shows a 7.2% year-over-year decline in core business profits in Q3 2023 to date at medium and large non-financial companies (companies with more than 50 employees).
Regarding other items in the current account:
- The merchandise surplus was accompanied by a surprising improvement in the value of trade, especially exports.
- The value of euro-denominated merchandise exports increased by 1.6% year-on-year (after falling 4.3% in September), while imports fell by 8.4% year-on-year, after a deep drop of 14.8% a month before.
As a net importer of energy raw materials, Poland is benefiting from the end of last year’s energy shock, mainly in the natural gas and coal markets.
However, the relatively low trade volumes continue to reflect the stagnation of the eurozone economy and a (shallow) recession in Germany (on the export side), as well as the resurgence of domestic consumption and investment demand and the continued year-on-year drop in energy raw material prices (on the export side). import side). The disappointing eurozone industrial production data published yesterday (-0.7% month-on-month, seasonally adjusted) does not bode well for a rapid rebound in external demand. Instead, domestic disinflation will support real wage growth and a rebound in consumer demand, which should translate into a rebound in imports.
According to the NBP commentary, in October there was a decrease in the value of exports, expressed in PLN, in five of the six main commodity categories, mainly in supply goods, but also in capital goods, foods and consumer products. There was only an increase in transport equipment, led by exports of pickup trucks, highway tractors, electric multiple units and passenger cars (eastbound). Exports of auto parts declined, reflecting Western Europe’s weak economy. As for imports, they fell in items such as fuel, supply goods and capital goods. In consumer goods and food there was a smaller drop than in previous months, while imports of transportation equipment remained at similar levels to last year.