The Polish current account deficit soared to EUR 931 m. in December nearly doubling the EUR 500 m expected by the market, with the drop in the headline balance due entirely to the unexpectedly sharp rise of the trade deficit. Interestingly, despite the robust domestic demand performance in Q4, import growth reported by the NBP was down to 16.3% y/y from roughly 20% in November and a 21.9% 6M average. However, the biggest surprise was that exports slowed even more to just 8.3% y/y compared with the 20% y/y on average in the past 6 months, which translated into a EUR 1.08 bn trade deficit, i.e. the worst monthly result in six years.
Even though the results do seem dreadful at first sight, we would not put much weight to one monthly set of data. Historically exports and imports have often been volatile and unpredictable, and the weak trade balance stands bluntly in contrast with the healthy fundamentals. The strong underlying economic picture in the EMU, which is by far and wide Poland’s biggest FT partner, supports our view that foreign trade activity will return back to trend in the coming months. As such we believe that the plunge in exports results was due to one off factors rather than a sign of upcoming prolonged weakness. On top of this the NBP pointed out that the official CSO trade data were not available at the time of the publication so the presented export and import data were rough estimates, subject to (possibly substantial) revisions in the future. Nevertheless as for now the December results put the 2006 deficit-to-GDP ratio at 2.1% compared with our previous estimate of 1.9%. On the bright side, despite the deeper deficit, the basic balance was up by 0.1% to 1.0% of GDP as the 2006 net FDI inflow came in above our expectations.