A continued improvement in Poland

Crédito y Caución expects a rise in corporate insolvencies that will slow down in the course of the year, driven by increased demand, investment and business performance.
Analisis Credito y Caución
Madrid - 20-set-2010

After growth of 1.8% in 2009, the Polish economy continued to grow in Q1 of 2010: seasonally adjusted by 2.8% year-on-year and 0.5% on the previous quarter. This growth, which has been driven in large part by industrial production [which rose 14.5% year-on-year in June 2010] and private consumption, is expected to have increased further in Q2 of 2010. The recent depreciation of the euro seems to have provided some encouragement for Polish exporters, who had previously been affected by the sharp appreciation of the Polish Zloty against the euro.

The situation in most industries is now much better than in 2009. While improvements in the economy at the beginning of 2010 havent matched those in the last quarter of 2009, the upward trend has nevertheless continued. Companies that managed to weather the depth of the economic crisis in the second half of 2008 and first half of 2009 now show improvements in their results and payment morale. Crédito y Caución expects further improvement after the second quarter of 2010.

In Metals, the situation for both manufacturing and distribution has improved, and, after a harsh decrease in 2009, generally companies have begun to increase their revenue levels, improving their ability to make payments. While price increases for steel have been helpful, many companies are still suffering from poor results, with those with an uncertain balance sheet and inflexible cost structure continuing to make late payments.

Fortunes in the chemical sector remain mixed. The fertilizers segment has recorded a weak recovery and the industrial synthetics segment has shown satisfactory improvement. However, companies that havent diversified their portfolio and focused solely on fertilizers are often struggling to survive in a falling market. The situation in the plastics and rubber industry is still uncertain, as demand inside the sector remains low.

The pharmaceutical industry hasnt exhibited major signs of late payment, but some pharmaceutical companies are highly indebted.

The food and beverage industry has generally been one of the strongest sectors, with producers, distributors and retailers showing improved results and good payment behaviour. The fish and meat sub-sectors however, remain quite weak, with noticeably poor liquidity, but there are fewer reported payment delays in the meat sector than in the past, and Crédito y Caución expects a better performance in the fish industry in the second and third quarters of 2010.

The transport services sector continues to perform poorly due to a high level of indebtedness, except for the most efficient and cost-controlling enterprises, but Crédito y Caución is seeing a slight overall improvement.

There is no sign yet of better times for the consumer electronics sector, as the downturn persists and competition intensifies. Small businesses in particular are suffering the dual problems of decreased turnover and limited access to external financing.

The building and construction sector still has major liquidity problems, made worse by the low level of investment.

The toughest problems are probably in the fuel industry [generally distributors], as its characteristic high leverage, combined with the economic downturn, has resulted in severe problems for many companies. According to Crédito y Caucións experience, payment problems occur more often in less specialized industries offering homogeneous goods/services, while those enterprises selling high quality products continue to show positive results: for instance the liquid petroleum gas [LPG] tanks sub-sector within the otherwise troubled fuel industry.

A slowing insolvency rate in the course of the year

Overall, Crédito y Caución expects corporate insolvencies to rise further this year in the wake of acute downturns in many sectors payments congestion combined with deterioration of demand/reached revenues still reap the harvest. That said, the increase will slow down in the course of the year, driven by increased demand and investment and improved business performance. Expectations are for economic growth in Poland of 3% in 2010 and 3.4% in 2011: well above that of its European peers.

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