EMEA Weekly: Russia Losing Steam, Continued Slowdown For Poland

There will be plenty of January figures from Russia next week that are likely to confirm that economic growth is losing steam. The consumer sector is still doing wel,l but as the economy is cooling down and the financial sector is less abundant with less household lending money, consumption growth is likely to moderate from the upbeat 6.6% y/y seen in 2012. We still expect robust retail sales growth of around 4% in January and for the unemployment rate to remain at the low level of 5.7%.

Thus, the big question puzzling the Russian economy for some time now is whether or not Russia is able to take a leap from a consumption-driven economy, into a growth model relying more on investments. Given the approaching Sochi 2014 Winter Olympic games and 2018 World Cup, we are a bit more optimistic. However, efficiency of the investments are as important when considering the long-term growth potential of Russia. For now, there is still little evidence that domestic fixed investments are picking up sufficiently to replace the cooling consumer sector. As the global economy is still stumbling, external demand is unlikely to be the growth driver either.

Polish data signals continued slowdown

The Polish economy slowed down considerably last year. Annual GDP growth last year showed only 2% growth, which represents a sharp slowdown from 4.3% GDP growth in 2011 and much less than we had assumed in our forecast. The main drag on growth came from weakening domestic demand and investments. Looking at recent economical hard data, it is clear that it has not yet stabilised and we will probably see a further slowdown this year, though likely only moderate. As the external environment is starting to look better, we should see the Polish economy start to recover by the end of this year, and in 2014 the Polish economy should demonstrate a sustained recovery with average GDP growth of around 2.9%.

Next week, there should be plenty of economic data which should generally support our view that the Polish economy has not stabilised yet. Industrial production for January will, according to our forecast, be quite weak and data from the labour market will show further deterioration.

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