The days of calm and predictable economic forecasts for GDP growth, inflation, commodity prices and interest rates are over. For almost two years, everything has been devoted to combating the consequences of a global pandemic. When the worst seemed over, Russian troops entered Ukraine – and it was war that set new standards.
- The latest reading of inflation in May leaves no illusions, the MPC will decide on a further rate hike at its June meeting.
- The introduction of limited sanctions on the import of crude oil from Russia to the European Union has raised its price to the level of 120 USD per barrel.
Crisis is a constant element of economic development
Every day we are inundated with hundreds of pieces of information that make it increasingly difficult to understand the world and its economic interdependence. Gazprom’s interruption of the natural gas supply to Poland, Finland, Bulgaria, and now also to Denmark and the Netherlands is presented as almost a problem in the world. Sanctions imposed on the import of crude oil and petroleum products mean higher prices on world exchanges and, consequently, higher prices at gas stations. The whole world is paying 30-40% more for gasoline and diesel than a year ago.
This fuels inflation, and when we add the high cost of electricity, we have a recipe for crisis. There is a shortage of food, especially cereals, as well as all types of oils, and rice prices are at an all-time high. Global stock markets, particularly in the United States, reacted to this situation with sharp declines in the main indices. The US dollar appreciated because everyone suddenly remembered that it was a transaction currency in the commodity market, and only Russia was trying to persuade importers to pay only in rubles.
Also read: Inflation in Poland hits a new 24-year high
In order to systematize the threats that can weigh on the world and Polish economy, it is worth describing some points.
Inflation is going crazy
Inflation in all countries is breaking records. In some countries it is already in double digits, including Poland. In others, it is systematically increasing, for example in Germany to break the record of 50 years ago, recorded even before reunification in the Federal Republic of Germany.
The Central Statistics Office’s May inflation was 13.9% year-on-year, while economists’ average forecast was 13.5%. Core inflation, which is not subject to energy and food price volatility, accelerated to around 8% from 7.7% in April.
According to analysts from Bank Millenium, inflation in Poland will continue to rise for a few more months, which will be an argument for further interest rate hikes in Poland.
Interest rates continue to rise
The next decision meeting of the Monetary Policy Council is scheduled for June 8. As MPC member Professor Cezary Kochalski recently said in an interview for CIS.PL, there is still room for interest rate hikes, although the first ones should have an impact on the economy. Polish economy (although they are not yet visible in the current inflation readings).
For all those who are in debt, autumn and winter will not be too friendly… Expect an increase in monthly payments and an additional burden on the household budget. What could be the target rate level? A few months ago, it was thought that rate hikes would reach 6 to 6.5%. Currently, the speech is up to 8 percent. It’s really not enough!
Will there be a balance between curbing demand and avoiding a recession in the economy? NBP experts need to answer this question.
Monthly loan payments keep rising
The number of applications for mortgage loans from banks is systematically decreasing. There is no data for May yet, but in April it was just 28.42 thousand, down 44.9% year-on-year and 46.8% lower. month to month.
Interest payments have increased from 500 to 900 PLN per month in the last six months. This means a very heavy burden.
There is also bad news for franchisees. The Swiss Central Bank issued a statement emphasizing the need to take measures to reduce inflation. It is true that its latest reading is 2.4%, but for the Swiss this is shocking data… The end of the negative interest rate policy could cause a further strengthening of the franc and an increase in its exchange rate by compared to the zloty. This, in turn, will result in an increase in monthly payments.
Also read: Inflation continues to rise
Building materials are also becoming more expensive
The Polish Association of Construction Employers does not have optimistic information for people building a house on their own or waiting for an apartment. The prices of building materials are rising. In April, they were 34% higher than a year ago, with some ranges breaking new records.
For example: mineral wool has become 100% more expensive, the lack of polystyrene imported from Russia and Belarus has caused the price of polystyrene to increase by 110% more than a year ago. When we add reinforcing steel, aluminum structures, wood, floor panels, electrical cables and asphalt, we have a relatively complete picture of the situation.
The ceiling of financial strength of potential home and apartment buyers is constantly being tested. In large settlements, the price per square meter exceeded PLN 10,000, other limits are “checked”. Who can last longer – developers or buyers? According to housing market analysts, the situation could be very different in the coming months.
Expensive fuel, expensive holidays
It’s high time to think about your summer vacation. Fuel market analysts using e-gasoline predict that next month the price of gasoline at Polish stations will rise to 7.30-7.40 PLN, and diesel will be slightly cheaper.
In July and August we will pay even more – and this will effectively prevent many people from traveling long distances throughout Poland. Holidays on the plot, in the immediate vicinity of the house, also have their charm. If only it weren’t raining…
If we go by car to Spain, Italy or even Croatia or Bulgaria, we will have to spend more than 300 euros more on fuel than a year ago. However, you only live once! Maybe it’s better to go there, recharge your battery, the internal one of course, to fight the difficulties of everyday life with your head held high in autumn?
The world could run out of food
The war in Ukraine has blocked normal trade in grain, fodder, oil and foodstuffs. A ton of wheat already costs more than 500 dollars and – worse – before the autumn harvest, the granaries of many exporting countries are almost empty. There is a shortage of palm, sunflower and rapeseed oil, and in many countries there are sales limits in stores. According to the EU Crop Monitoring Unit, the prolonged drought in May will limit the harvest across the EU.
In addition to the physical shortage of food products, such as powdered milk in the United States, prices are rising dramatically – and this translates into high inflation
Stocks are running out of steam
Since the beginning of the war in Ukraine, the declines are visible on all stock exchanges. Since the peak of the boom in January this year, the S&P 500 has fallen more than 16% in the United States, the Dow Jones 12% and the Nasdaq Composite 30%.
Hundreds of billions of dollars, yen and euros “evaporated” from the market. It begins with a delicate but still perceptible retreat of new technology companies to the benefit of traditional companies. Mining and processing companies, agribusiness, energy, fuels and banks are gaining popularity with investors.
Companies in the aviation industry benefit from the estimate – both the production ones, i.e. Airbus, Boeing, Bombardier, and the carriers themselves.
I will buy natural gas at bargain prices
Natural gas supply forecasts for the fall-winter season are highly uncertain. The assurances of the Polish authorities, with Minister Piotr Naimski in charge of the construction of the Baltic Pipe, refer to a situation in which there will be no shortage of gas for the needs of households and industry. Unfortunately, it will be more expensive than today.
Other countries that are entirely or largely dependent on Russian supplies may encourage their residents to save money, limit indoor temperatures and seek other sources of supply.
It is unanimously agreed that becoming independent of supplies from the East must cost money. However, the question remains whether we are prepared for such significant price increases.
BCE in the starting blocks
The strategy of the European Central Bank in the fight against rising inflation is currently not fully known. In the euro zone, it exceeded 7.5% and interest rates are maintained at a level close to zero. We had these levels a year ago… We can all see what it ended up with. In these months-delayed decisions, economists see a struggle between proponents of maintaining economic growth and a self-abatement of inflationary pressures.
In the long term, the policy of sitting on the sidelines and waiting for market decisions can prove very costly. In addition, it will consolidate the mechanism of rising prices above the average, which will soon lead to pressure on wages. It is very difficult to stop this “spiral of death”.
It’s bad, but not hopeless
The description of reality is never as pessimistic as it seems to us. Many elements can be used to change habits, save measures.
The global economy is in shock. Traditional supply chains have collapsed, but new projects are emerging instead. Instead of total globalization, we can have a global model with regional elements. We don’t have to go on vacation by car, maybe take the train… If we waste less food, there will be enough food for others, and prices will go down over time.
Political and economic crises are a component of the economic cycle. Only we, over the past 30 quiet years, have recognized that the last real challenge for Europe after the fall of Communism and the Berlin Wall is only the fight against global warming. .
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