Saturday, July 21, 2012

Shame on the Economist! It is so wrong on Poland

The current edition of the Economist features an article on "Dream on?", which is unprofessional, misleading and wrong on basic facts about Poland.

First, it says that "In Poland, for example, credit to the private sector grew by an extraordinary 36.6% in 2008, contributing to a current-account deficit of almost 9% of GDP." This is manipulation, because it talks about growth from a level of private credit that it much lower than anywhere else among peers and thus much less worrisome (Poland's private credit to GDP ratio is one of the lowest in the whole EU, close to Romania only; it is much different to worry about fast credit growth in an economy with credit much exceeding 100% of GDP, like in most of the EU, than in Poland, with 60% of GDP or so).

Second, thee current account deficit in 2008 was only 6.6% of GDP, according to the IMF, not almost 9% of GDP (where did they get the data from???).

Third, it argues that "In recent months, the FDI and portfolio capital Poland required to fill this [current account gap] gap has flowed in the wrong direction. That leaves the country uncomfortably "susceptible" to the euro crisis, says Raffaella Tenconi of Bank of America Merrill Lynch, if it prompts a further withdrawal of cross-border lending", which is another manipulation since the data are taken out of context and are for only of couple of months of the year (exactly when dividends are paid to foreign owners of Polish companies, which biases the data, rather than for the usual whole year). For the whole year, the IMF projects a current account deficit of 4.4% of GDP only, largely financed by FDI and EU inflows. I don't know who Raffaella Tenconi from BoFA is, but she doesn't really know what she is talking about (or she has a short position on the zloty and wants to finance her early retirement....). As to her claim that Poland is susceptible to the euro crisis, while true in general (which country in Europe isn't?), is wrong in detail as Poland is one of the least, not the most susceptible economies in the EU to the euro zone further troubles. If fact, as I have argued before, the euro zone crisis is a blessing for Poland, since, inter alia, it keeps the zloty exchange rate so low, that Poland is Europe's China in terms of price competitiviness. The banking sector, which Tenconi implicitly argues would be the major channel of contagion, is well capitalized, profitable, and largely funded by domestic deposits making withdrawals of foreign financing less relevant (the two largest banks, PKO BP and PEKAO SA, have loan-to-deposit ratios below 100, meaning that all their loans are financed by domestic deposits, not foreign borrowing)

Finally, it is a shame that the Economist continues to classify Poland as an emerging market, putting it in the same basket as China, Russia ot Turkey. Poland, with GDP per capita PPP of US$20,000, three times the level of China, is not an emerging market anymore. The World Bank and the OECD now officially classify Poland as a developed economy, not an emerging market. According to the IMF, Poland's GDP per capita will exceed that of Portugal and Greece in the next couple of years - perhaps we should call these countries "emerging" (even if for now they are rather "submerging" to be exact) too? Time for the Economist to grow up.

1 comment:

Piotr Bakker said...

Please write them a letter, this is important. If you haven’t already, that is.