Zloty Gains Again

By Steven Muller

The zloty rose another three percent in the last week against the euro and the pound, making all those earning in the currency a little bit richer compared to Poland’s western neighbours. But as the public concerns of politicians and central bankers in the last week show, the currency’s gains may store up trouble for the economy in the longer run.

In essence, a stronger zloty is a reflection of Poles’ increasing power in the European economy, and economic growth that has at least doubled that in the euro zone in each of the last five years. That trend is set to continue but it will become progressively harder to maintain.

As the zloty grows stronger, Polish goods become more expensive for consumers abroad and it becomes tougher for exporters to compete and maintain market share while still making a profit. That has already led to a dip in the pace of growth of exports and, unrestrained, the zloty will eventually cripple a sector that has been the engine of Poland’s growth since the late 1990s.

It also seems clear that the currency’s gains are due to speculation that adopting the euro is not as far away as all that – drawing oodles of cash from foreign hedge funds and investment banks to buy bonds and other zloty assets.

All that aside, however, for the next few years there are several very good reasons not to worry.

To date companies have dealt with the zloty’s appreciation by cutting what were often huge profit margins on the goods they sold – and in the last 1-2 years by upping investment by as much as 20 percent annually. For now it seems to be working – Polish exports are still growing by double digits of percent year-on-year.

Source: New Warsaw Express