CE Financial Observer: The Poland’s Central Statistical Office (GUS) confirmed GDP growth in 2016 at 2.8 per cent. You predicted such growth in the NBP macroeconomic survey in December, and back in March 2016 you predicted the growth to be 2.8-3.4 per cent, although current growth was higher at that point. Your predictions turned out to be the most accurate in this survey. What led you to present such low forecasts?
Bohdan Wyżnikiewicz: I prepared my forecast independently. I sat down to fill out the survey surrounded by various materials: the forecast of my Institute and the market consensus forecasts from London and Warsaw. I took a creative and critical look at them. I presented the threshold of 2.8 per cent in March because the NBP survey requires the participant to not only provide one figure but also to place it within a certain range of probability, which is an interesting intellectual exercise and a big advantage of the survey.
At the end of 2015 GDP increased by 3.9 per cent which was announced at the end of January. Meanwhile in March you provided a forecast for the next year in a range that was over 1 percentage point lower. In 2016, the largest decrease was recorded in investment – were you already expecting this to happen back then?
It was no secret and I wasn’t the only one pointing out that Poland is in transition between one EU framework and another and that this will affect investment. I was also prompted to lower the forecasts by the proposals of the new government. This was shortly after the presentation of the Action Plan for Responsible Development, which promised far-reaching changes. And in the economy, whenever there is a reallocation of forces and resources on such a scale, this may at least temporarily slow down growth based on simple continuation. Besides 2.8 per cent is a pretty decent growth rate. For the time being this is just an estimate of GUS and we should hope that it isn’t lowered.
Can we already state that the low point was reached in the third quarter (GDP growth of 2.5 per cent) and that things will only get better from now?
I would like this to be true, but we should keep in mind that the data presented by the GUS are not yet final. I was surprised at the rate of growth of inventories – they were to a large extent responsible for the GDP result. This is interesting as in general it is assumed that they have no effect, because it is very difficult to estimate their level in the future. Meanwhile, it turns out that the change in inventories was important last year.
Wiktor Wojciechowski from Plus Bank also points out the weak private investment in machinery and equipment. He suggests that in 2017 only the public sector in Poland will invest on a large scale.
I would also be careful about increases in private investment, because entrepreneurs still face a lot of uncertainties. There was talk about the retail sales tax, the prohibition of trade on Sunday, we still don’t know about the resolution of the Swiss franc mortgage issue and hence the balance sheets of the banks. These are factors that may contribute to the postponement of investment.
Will investment be as weak as in the past year?
No, I assume that the investment rate will be higher after all, and that the GDP growth rate will also increase, if only because of the statistical effect and the comparison with this year’s low base.
What growth rate do you expect?
The GDP growth rate should be 2.9 per cent to 3 per cent at the end of 2017, and therefore marginally higher than in 2016.
Will domestic demand continue to disappoint the economists? It seems that expectations with regard to child benefits and other programs were greater?
Consumption may prove disappointing to those who had excessive expectations. I travelled across Poland and asked people how they were spending the child benefits money. They rarely said that it was all spent on consumption. The owners of used car dealerships said that there was an increase in demand for the cheapest cars, bought in instalments no higher than PLN500 per month. This money also helped people to pay off outstanding debts and replaced the so-called payday loans. On the other hand, there are more deposits in the banks. If we take all of this into account, then it’s hard to expect a sharp increase in consumption.
What about exports? Will they help GDP?
It’s always the safest to predict that the contribution of net exports will be neutral. But speaking seriously, there may be surprises this year arising from the decisions of the new President of the United States (read more about the possible impact of Trumponomics), which are difficult to predict. In addition there is the looming prospect of Brexit, which can already be seen in the statistics – the United Kingdom is no longer the second biggest market for Polish goods, as it was surpassed by the Czech Republic. In general, exports are the biggest source of uncertainty this year.
And will the GDP growth rate rise above 3 per cent in 2018?
Well, in this case a lot depends on the effectiveness of the Poland’s government and on the budgetary situation. If it is possible to actually close the loopholes in the tax collection system and if the social programs continue to operate on the same scale as before, then a growth rate of over 3 per cent could be possible in the next year. However, if it is necessary to rescue the budget through spending cuts or new taxes, this will of course affect economic growth.
You were the president of the Central Statistical Office. What is your opinion on the discussion about a potential revision of the GDP data due to the VAT fraud, which supposedly inflated exports?
I think that if there is any downward revision, then it will be marginal, without much effect on the GDP growth rate, but with an impact on its level. This would be detrimental because of the deficit to GDP ratio and the public debt level.
Do you support such a revision?
Of course I want the GDP growth rate to be real, and it will be real if the reporting entity, i.e. the Ministry of Finance, determines beyond any doubt that there were some inflated figures there. It’s just that this isn’t all that simple – we don’t know to what extent this was fictional export because these products could have been sold domestically. To determine this Poland would have to carry out very complicated product accounts with the size of the domestic production, the imports, the exports and the domestic sales. And if it turned out after such operations that there were any irregularities, their impact on the GDP growth rate would certainly be marginal.
Bohdan Wyżnikiewicz, PhD, economist and statistician, Vice President of the Management Board of the Institute for Market Economics.