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Macroeconomic environment

Polish economy

Ikonka informacyjna

In accordance with the quick GUS estimate published on 14 February 2018, Poland’s GDP growth rate sped up in Q4 2017 to 5.1% yoy from 4.9% yoy in Q3 2017 (data not adjusted for seasonality). Although the growth pace turned slightly weaker than expected by the economists surveyed by the ISBnews agency, who expected a rate of 5.2% yoy1, it was the fastest since Q4 2011.  As a result the average economic growth rate in Poland was 4.6% in 2017, compared to 2.9% in 2016, which means that the Polish economy recorded the most dynamic growth since 2011.2

The most powerful driver of the economic growth in 2017 was private consumption (average increase of +4.8% yoy), supported by social transfers under the Family 500+ program and improving situation in the domestic labor market3. The unemployment rate registered as at the end of December 2017 dropped to 6.6%, which is the lowest level since 1991.4 At the same time, in accordance with GUS data, in 2017, the average nominal salary in national economy increased by 5.5% yoy, and in real terms by 3.4% yoy, to PLN 4271.515. In 4Q 2004 only, a nominal growth of salaries of 7.1% yoy was recorded, which shows that the salary growth rate was the highest since Q3 2007, i.e. before the Global Financial Crisis.

Investments were the next major factor that boosted GDP in 2017. Their growth rate strongly accelerated in H2 2017. As a consequence, the average annual growth rate of gross fixed capital formation was +5.4%, compared to the -7.9% yoy decrease recorded in 2016.6 The growth rate of investments, in particular in the public sector was facilitated by a more dynamic than in 2016 inflow of EU structural funds under the financial perspective for 2014-2020, and better sentiments among enterprises and the highest since 2008 level of utilization of production capacity7

Also net exports had positive impact on the economic growth in Poland, but its contribution to GDP dropped compared to 2016 and 2015.

1 ISBnews
2 Central Statistical Office of Poland
3 Business Insider
4 Economy and Social Policy Ministry
5 Central Statistical Office of Poland
6 Central Statistical Office of Poland
7 NBP: Inflation Report. November 2017.

GDP growth rate in Poland in 2012-2017 per annum and forecasts for 2018-2019

Source: Central Statistical Office (revised estimate of gross domestic product for 2012-2016 dated 23 October 2017); National Bank of Poland forecast (November 2017)

Czech economy

In accordance with the data of the Czech Statistical Office (ČSÚ), Czech Republic’s GDP growth rate adjusted for seasonality in Q4 2017 was 0.5% qoq and 5.1% yoy, compared to 5.0% yoy in Q3 20171. The result recorded by the Czech economy in Q4 2017 was weaker than the projections of the Czech Republic Finance Ministry, which expected that the economic growth rate would be 0.7% qoq and 5.3% yoy, respectively. The average GDP growth rate in the Czech Republic in 2017 was 4.5%, much higher than the rate of economic expansion in 2016 (2.5% yoy)2.

According to figures not adjusted for seasonality, in 2017, GDP growth rate was 4.3% yoy, compared to 2.8% yoy in 2016.

According to the information of the Czech Statistical Office (ČSÚ), all aggregate demand components, in particular net exports and household consumer expenditures, contributed to the GDP growth rate in 2017. In 2017 both the Czech industry and the local services sector did well.

The strong economic growth rate had positive impact on the labor market – employment in the Czech Republic increased in 2017 by 1.6% yoy. In 2017, the average CPI inflation rate according to the data of the Czech Central Bank (ČNB) was the fastest in the past five years and stood at 2.5% yoy, i.e. in the top tolerance range above the ČNB inflation target (2.0%).

1 Czech Statistical Office
2 Czech Statistical Office

Real GDP growth rate in the Czech Republic in 2012-2016 and 2017-2019 forecasts – data not adjusted for seasonality

Source: European Commission and the Czech Republic’s Finance Ministry

Industry in Poland

The condition of the domestic rail freight market is highly correlated with the overall situation in Poland’s main industries – in particular mining, construction and steel industry. This is associated with the leading role of these cargo categories in the total volume of cargo transported by rail. The volume of cargo transported by rail in Poland is also influenced by the condition of such industries as the fuel sector, metal processing, chemical industry, timber industry or container cargo shipment sector.

In 2017, total industrial production soldincreased 6.5% yoy, compared to a 3.1% yoy growth in 2016. In the last quarter of 2017, the average pace of growth of industrial production was 8.4% yoy, i.e. was the highest since Q4 2011, exceeding both the result from Q3 2017 (6.3% yoy) and H1 2017 (5.8% yoy)2.

1 enterprises employing more than 9 persons
2 Central Statistical Office of Poland

Mining industry

In 2017, Poland mined 65.8 million tons of hard coal, which was 5.0 million tons less yoy (-6.8% yoy)1. In 2017, also total coal sales dropped, reaching 66.3 million tons (-9.3% yoy). At the same time the inventories of hard coal have been gradually decreasing; as at the end of December 2017 there were nearly 1.7 million tons of this raw material stored in the mine storage yards (compared to 2.5 million tons and 5.8 million tons in December 2016 and 2015, respectively).2In the face of lower domestic output and simultaneously continuing high demand by the professional power sector and private buyers, foreign hard coal supplies have intensified.  Coal imports stood at 14.4 million tons in 2017 and in 2016 at 8.3 million tons, up 73.5% yoy3.

In accordance with the data of the Industrial Development Agency (ARP), professional energy sector remains to be the biggest hard coal buyer. In 2017 electricity production in Poland amounted to 165,852 GWh and was 2.0% higher yoy. Production of electricity in professional hard coal-fired power plants decreased in 2017 by 1.8% yoy, which indirectly contributed to the shrinking share of hard coal-fired power plants in total electricity production by 1.9 p.p. yoy to 48.2%4.

The Polish hard coal mining industry was spurred by increases in coking coal and steam coal prices on the domestic and global market and the resulting increase in sales revenues. In accordance with the information of the Industrial Development Agency, in 2017 total revenues of the hard coal mining industry in Poland amounted to PLN 20.5 billion (over +14.0% yoy). As a result, net profit of the mining industry in 2017 stood at PLN 3.6 billion, compared to a PLN 0.7 billion loss recorded in 2016.5

The coal prices in seaports, such as Amsterdam-Rotterdam-Antwerpia and Richards Bay (ARA) are also an important factor affecting the standing of the domestic hard coal mining industry. December 2017 brought a continuation of the steam coal price increases observed since May 2017 in ARA ports month over month to  USD 94.7 USD per ton. In the entire 2017, the average price of ARA steam coal increased on average by 41.9% yoy to USD 84.2 per ton. Putting aside temporary drops which occurred in late winter of 2016 and in the spring of 2017, steam coal prices in global markets have been in an upward trend since April 2016 (when the prices of this raw material recorded long-term lows below USD 50 per ton), influenced among others by the dynamic development of global economy and China’s attempts to restructure the local mining sector, reducing the supply of this raw material in global markets. From mid-January 2018 one can also observe a strong decline of coal prices in ARA ports, caused, among others, by limited demand for coal due to increase in energy production from wind in Germany6. ARA prices recorded a decline despite strong coal price increases in the Pacific and Australia regions in the face of, among others, the lifting the import quota for the steam coal by China7.

1 Central Statistical Office of Poland
2 Polski Rynek Węgla [Polish Coal Market]
3 Eurostat
4 Polskie Sieci Elektroenergetyczne
5 Industrial Development Agency (ARP)
6 http://www.energetyka24.com
7 cire.pl

Current coal price indices on the European ARA* vs. RB markets**

Current coal price indices on the European ARA* vs. RB markets

*ARA – Amsterdam, Rotterdam and Antwerp;
**RB – Richards Bay (RSA)

Source: Virtual New Industry

Steel industry

In 2017, Poland produced 10.5 million tons of raw steel as compared to 9.2 million tons in 2016 (growth by +15.1% yoy)1. Production of hot rolled products in 2017 stood at 9.8 million tons, compared to 8.8 million tons in 2016 (+10.9% yoy). In the above period, total revenues from metal sales amounted to PLN 55.1 billion (real growth of 11.5% yoy), while revenues from metal product sales in 2017 were PLN 93.66 billion (real growth by 10.7% yoy). Coke production in Poland dropped in 2017 by PLN 0.5 million tons (-4.7% yoy) to 9.3 million tons.

In 2017 steel production increased also externally, both in Europe and among leading global producers (China, India and Japan). According to World Steel Association information, the total volume of raw steel produced by the 66 affiliated countries (responsible for approx. 99% of global production) amounted to 1,674.7 million tons (up 5.5% yoy)2.

Steel production in the European Union in this period stood at 168.7 million tons (up 4.1% yoy).

In accordance with the data of the European Steel Association (Eurofer), apparent steel consumption in the European Union increased 1.1% yoy in Q3 2017 compared to the decrease in consumption by -0.4% yoy in Q2 2017.3 Deliveries of local (European) steel producers to the market increased in this period by 4.4% yoy, and imports from third party countries shrank by nearly 14.0% yoy. This is a reversal of the trends observed in H1 2017, when steel import from neighboring countries was higher by nearly 8% yoy, and European producers recorded a strong decline of deliveries. The change resulted mainly from the increases in global steel prices (reducing international competitiveness of the neighboring countries), and from anti-dumping regulations introduced by the European Commission to protect the home market.

Eurofer analysts expect that in Q4 2017 the above trends continued and, as a result, apparent steel consumption increased in 2017 by 1.9% yoy. At the same time production in steel-intensive industries increased in Q3 2017 by 4.6% yoy (mainly due to strong increase in construction, steel pipe and machinery production), and in the entire 2017 the increase is estimated at 4.7% yoy – which would be tantamount to the quickest pace of expansion of the industries using steel since 2011.

1 Central Statistical Office of Poland
2 World Steel Association
3 Eurofer

In the next quarters the demand for steel should remain strong due to the expected further stable growth of its consumption in the European Union.

Eurofer experts predict that the real steel consumption will grow on average by 1.8% yoy in 2018 and 1.6% yoy in 2019, which will correspond to the estimate increase in production in steel-intensive sectors by 2.2% yoy in 2018 and 1.8% yoy in 2019, respectively. As a result, an increase in the apparent steel consumption (supply) by 1.9% yoy in 2018 and 1.4% yoy in 2019 is expected. Also further projected increase in steel prices in the market will drive steel production. In the opinion of MEPS International experts, the upward trend of steel prices observed in 2016 and 2017 will continue in the quarters to come, which will be supported by application of market protection measures by EC1.

1 http://hutnictwo.wnp.pl/

Construction industry

Construction and assembly production expressed in fixed prices increased in 2017 by 12.1% yoy, compared to the 14.1% yoy decline in 2016.1 Only in Q4 2017, construction and assembly output grew by 17.6% yoy, which exceeded the growth rate observed in Q3 2017 (13.0% yoy increase) and H1 2017 (7.6% yoy increase). At the same time, this is the highest average growth rate of construction and assembly output recorded in quarterly terms since 2011, i.e. the construction boom before the EURO 2012 in Poland. 

The intensification of investments (and this infrastructural expenditures) in 2014 was attributable primarily to the increased inflow of EU structural funds under the financial perspective 2014-2020. The non-smooth transition from the financial perspective 2007-2013 to the perspective 2014-2020 and the related delays in EU fund spending contributed to strong declines in capital expenditures in Poland, on average -7.9% yoy in 2016. In accordance with preliminary GUS data, in 2017 the growth rate of investments accelerated on average to 5.4% yoy, and in Q4 2017 the capital expenditures growth rate amounted to 11.3% yoy2.

The increase in investments in Poland is attributable mainly to the public sector. In accordance with the Finance Ministry information, in Q3 2017, capital expenditures of the government and local government institutions sector increased by 22.2% yoy, out of which local self-government units recorded an increase by 44.1% yoy3. The expected faster absorption of moneys under EU funds should facilitate the growth rate of capital expenditures in the public sector also in 2018, especially in the context of the planned local government elections in Poland scheduled for the autumn this year.

One of the flagship projects in infrastructural investments executed from the central and local government budgets and co-financed from EU funds is the construction and modernization of the road and railway network in Poland. On 12 July 2017, the Council of Ministers adopted a resolution modifying the provisions of the long-term infrastructural program entitled “National Road Building Program in 2014-2023 (with an outlook to 2025)”. In accordance with the existing division of funds, total expenditures will amount to PLN 196.4 billion in 2014-2020, bulk of them to be spent in 2018-20204. According to the amendment made in December 2017, in turn, total expenditures on rail infrastructure in the “National Rail Program until 2023” are estimated at PLN 66.4 billion.5

1 Central Statistical Office of Poland
2 Central Statistical Office of Poland, Preliminary estimate of the gross domestic product in Q4 2017, February 2018
3  Finance Ministry
4 Ministry of Infrastructure and Construction
5 Ministry of Infrastructure and Construction



Industry in Czech Republic

In 2017, industrial production in the Czech Republic increased by 5.7% compared to 2016.1In Q4 2017 the growth was 7.3% yoy compared to 5.0% yoy in Q3 2017 and 5.3% yoy in H1 2017.

Among the industries classified by CZSO, the growth of production of the whole sector in 2017 was driven primarily by: production of chemicals and chemical products (growth by +19.6% yoy), manufacture of computers, electronic and optical products (+9.9% yoy), production of basic pharmaceutical substances, medicines and other pharmaceutical preparations (+9.8% yoy), production of electrical devices (+9.1% yoy), manufacture of motor vehicles, trailers and semi-trailers (+9.6% yoy), manufacture of rubber and plastics (+7.9% yoy) and manufacture of machinery and equipment (+7.3% yoy). A decrease in activity, in turn, was recorded in such industries as: production of other transport equipment (decline by 11.1% yoy), repair and assembly of machinery and equipment (-6.4% yoy) and mining and quarrying (-6.1% yoy).

Total revenues from industrial activity (expressed in current prices) increased in 2017 by 6.5% yoy, including revenues from export activity increased by 6.3% yoy and domestic sales (comprising indirect exports, i.e. using enterprises from outside the industrial sector) increased by 6.7% yoy.

In addition, the good condition of the Czech industrial sector is confirmed by the recent levels of the forward-looking PMI (Purchasing Managers’ Index). In December 2017 it reached 59.8 points, and in the entire 2017 on average 57.1 points, compared to 53.0 in 2016. A level above 50.0 points indicates a continuing upturn in the industrial sector. In January 2018, the PMI index was at the December level, i.e. 59.8 points, and its component associated with the current production reached the highest level since February 2011. Also new orders (both domestic and foreign) and employment recorded stable growth.2

1 Czech Statistical Office
2 IHS Markit

Mining industry

In Q4 2017 the Czech Republic mined 1.6 million tons off hard coal (up by 1.9% yoy)1. In the entire 2017 hard coal production reached 5.5 million tons, down by 19.3% yoy. Such a strong decline of hard coal production in the Czech Republic is the direct result of decommissioning of the Paskov mine in March 2017 and the ongoing restructuring processes in the mining sector. The restructuring program for the Czech mining company OKD adopted by the Regional Court provides for gradual phasing out
of the company’s mines. Next, the following mines will be closed down: Darkow and Lazy (by the end of 2018) and CSA and CSM by 2021 and 2023, respectively. As a result, in the analysts’ opinion, in 2018 one may expect further decline of production to approx. 4.6 million tons.

1 Czech Ministry of Industry and Trade

Quarterly extraction of hard coal in the Czech Republic in 2015-2017 (thousand tons)

Source: Czech Ministry of Industry and Trade

Steel industry

The metallurgical industry in the Czech Republic consists mainly of two sectors: metal processing (ferrous and non-ferrous metals) and metal foundry industry. The main determinants of demand for the metallurgical sector’s products in the Czech Republic are: automotive industry, construction and mechanical engineering. The key development barriers in the development of the metallurgical industry include, in turn, high costs associated with other kinds of transport than maritime or inland waterway transport, which is due to the Czech Republic’s lack of direct access to the sea and location away from water reservoirs used in transport.

 This forces the steel industry to rely on more expensive rail transport1. In addition, the increasing shortages of qualified labor force reported by enterprises contribute to increasing pressure on salary increases and thus indirectly increase unit labor costs. As a result, the international price competitiveness of the products manufactured by the Czech metallurgical industry decreases.

In 2017 production in each of the three main steel industry categories decreased compared to 2016. According to Steel Federation a.s. data, raw steel production in 2017 totaled 4.6 million tons (down by 14.2% yoy). Production of pig iron declined in the period to 3.7 million tons (-11.4% yoy) and the volume of hot rolled products shrank to 4.6 million tons(-10.2% yoy)2.

1 National Training Fund, o.p.s., “Manufacture of basic metals and fabricated metal products”
2 The Steel Federation a.s.

Construction industry

In 2017 the construction and assembly output in the Czech Republic increased 1.7% yoy, of which total construction output increased in the period by 5.0% yoy and the engineering construction output shrank by 5.7% yoy1.

In Q4 2017 the volume of the construction and assembly output in the Czech Republic increased 1.7% yoy, and total construction output increased in total by 3.2% yoy and the engineering construction output growth rate decreased by 1.8% yoy.

Favorable conditions can be also seen when analyzing the scale of inflow of EU structural funds, the number of issued building permits and their value, construction orders, apartments under construction and completed apartments.

In the entire 2017, the total value of capital transfers from the EU to the Czech Republic was EUR 3.0 billion, approx. EUR 1.3 billion of which were paid under cohesion funds, and another EUR 1.2 billion under EU regional development funds.  In total in the financial perspective for 2014-2020, nearly EUR 22 billion is slated for the Czech economy, which should drive intensification of infrastructural works in the next quarters2.

1 Czech Statistical Office
2 Eurostat

Automotive industry

Due to the long-term tradition of car production, developed road infrastructure and qualified labor force, the Czech Republic is one of the key manufacturers of motor vehicles in Europe. The high headcount in the automotive industry and the steady growth in vehicle production have made this industrial output segment one of the strongest motors of development of the Czech economy.Currently the Czech automotive industry employs over 150 thousand people and accounts for 20% of Czech industrial output and Czech exports.1

The biggest producers of passenger cars operating in the Czech Republic in 2017 were: Škoda Auto a.s. (60.7% share in the car production market), Hyundai Motor Manufacturing Czech s.r.o. (a 25.2% market share) and TPCA Czech s.r.o. (Toyota, Peugeot, Citroën) with a 14.1% market share. In 2017, the automotive industry branch manufacturing delivery vans and buses was made up of the following entities: Iveco Czech Republic a.s. (a 88.6% market share), SOR Libchavy spol. s.r.o. (a 10.2% market share) and other manufacturers (a 1.2% market share)2.

In 2017, the automotive industry in the Czech Republic reached historic production levels, which was driven, among other factors, by a rapid growth in both the global economy and the Czech economy, translating indirectly into an increase in demand for motor vehicles in the Czech economy and its macroeconomic environment.

According to the recent pronouncements by CEO of Automotive Industry Association, a lower growth rate in the Czech motor vehicle production sector should be expected in the upcoming quarters due to the anticipated decrease in the rate of economic growth in the Czech Republic and the euro zone3.

1 https://www.czechinvest.org
2 Auto SAP
3 Auto SAP

Intermodal transport

Container transport is gradually becoming more and more significant in the volume of rail transport in the Czech Republic. According to most recently updated Eurostat data for 2016, the volume of containers transported in the Czech Republic by rail was 1.57 million twenty-foot equivalent units (TEUs), up 5.9% yoy. Since 2009, total container transport expressed in TEUs has increased 75.9%1.

AWT, which belongs to the PKP CARGO Group, owns the Paskov intermodal terminal, established in 2007 in the area of the former Paskov mine. The strategic location of the terminal on the transport map of Europe allows for fast connections to leading European ports and terminals such as Hamburg, Rotterdam, Bremerhaven, Koper, Trieste, Gdańsk and Gdynia or other terminals in the Czech Republic: Prague, Mělník and Lovosicích.
The present surface area of the terminal is 31 thousand m2 and its total capacity is 2.4 thousand TEU. AWT provides there comprehensive services in the area of transshipment, storage or freight forwarding of containers.

1 Eurostat