What happened to the zloty? This has not been the case since 2008

The zloty has gone through a very difficult period. It has weakened in recent days, but still maintains a high value – we read in “PIE Economic Weekly”. As the authors of the post point out, we have recently observed a slight course correction. The zloty initially lost 10 cents against the euro, from 4.26 to 4.36, but in the following days it made up half of this loss, returning to below the 4.32 level for the euro. The weakness was likely caused by the poor mood in global markets, linked to tensions in the Middle East and high inflation in the United States.

Despite this episode The Polish currency remains strong Analysts confirm. Even after last week's weakness, the zloty fell by 6.3%. Stronger against the euro than a year ago.

However, the actual strength of the zloty is best illustrated by the so-called real exchange rate, i.e. adjusted for inflation. According to data from the Bank for International Settlements, since the outbreak of the pandemic, the Polish currency has strengthened in real terms by up to 20.6%. It is currently the strongest since 2008. The strength of the zloty is due to strong economic fundamentals, namely strong GDP growth, the inflow of foreign direct investment, and the release of EU funds under the KPO law, the authors state.

Does a strong exchange rate hurt exporters? As PIE analysts note, such planning logic suggests that a stronger currency means goods coming from our country become more expensive for foreign consumers. As a result, they have to buy Polish products less and be more willing to use alternatives from other countries. “In fact, this relationship is much weaker than commonly thought– The authors stated, citing a study by Verrelli and Lovo (2016) for Poland.

The economists mentioned above pointed out that companies are both importers of components and exporters of products. Part of the loss in less profitable exports is automatically compensated by correspondingly cheaper imports. Moreover, in more technologically advanced industries, production plants are linked within global value chains. Changing the supplier in such cases is very expensive or even impossible. Large companies can also hedge currency risks in the financial market, add the authors of the aforementioned study.

PIE researchers conclude so Strengthening the Polish zloty weakens the exports of primarily small businesses, With low productivity and poor communications with foreign partners. On the other hand, these companies own a larger share of Polish capital. In the case of importing companies, it is not less than 30 percent. The authors confirm that the impact of exchange rate changes on exports is negligible.

Trade data also indicates a slight impact of the strengthening of the zloty on exports, as we read in “PIE Economic Weekly”. According to the Central Statistical Office, in 2023, Polish exports of goods measured in euros and in volume increased by 1.4%, despite the strongest currency strengthening in 15 years. Moreover, the weakest exports were to countries with particularly poor economic conditions, for example the Czech Republic. However, Poland increased its exports to France (by 8.4% in euros), Spain (by 8.3%) and the USA (by 6.5%).

The NBP survey also indicates this Polish exports remain profitable The authors point out. At the end of 2023, the Polish zloty was about 30 grozy weaker than the level at which exports stop generating profit, and this value is close to the historical average. The percentage of companies with unprofitable exports increased to 13%.But unprofitable exports account for only 2%. Total export revenues are growing more slowly than in previous episodes of currency strengthening.

PIE Economic Weekly analysts estimate that last year's strengthening of the zloty mainly affected small companies with a simple production profile and low added value, but also with a larger share of Polish capital. However, the impact on larger, more advanced entities, especially those with a large share of imported components, has been limited. Data on strong export growth in 2023 confirm this hypothesis.