December 9, 2022

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Inflation and rising costs are affecting Polish companies

Inflation and rising costs are affecting Polish companies

Rising prices Other European economies are also suffering. In October, prices across the European Union were 4.4 percent higher. y/y, the highest reading since at least 1997, since Eurostat published the data.

Dynamic price increases and supply chain cracking in the pandemic translate into business difficulties Polish companies. One way to limit it may be international expansion. – Some Polish companies saw great opportunities for themselves to acquire foreign entities or develop abroad precisely due to the fact that the situation in some markets is not changing dynamically – says Maciej Babanu of PFR TFI’s Foreign Expansion Fund.

The current state of the market, which is characterized by the first degree Rising prices, translates into the activities of all companies in the Polish and global economy. It is also important that these prices do not grow uniformly everywhere. For example, in Europe – incl. Because of the current energy crisis – it is growing more dynamically than Asia. This in turn means that geographic diversification enables firms to access factors of production in those regions where prices are, at least temporarily, lower, Macej Babano explains.

October was another month Record high rate of inflation. Among the 32 European countries (including the European Union and the eurozone in general), inflation in 27 countries exceeded 3% and in 11 it was above 5%. Across the European Union, prices were 4.4 percent higher. y / y, the highest reading since Eurostat began reporting inflation data – shows the expert opinion prepared by the analytical team of the Polish Development Fund. It also shows that rising costs and disruptions in the supply chain have a negative impact on the results of economic surveys. Although each country’s manufacturing PMI crossed 50 points in October, overall in the Eurozone and the EU as a whole it was slightly lower than it was in September.

The possibilities of further price increases have two pillars. The first is the cyclical factor resulting, among others, from the lack of availability of energy carriers in Europe, which is likely to pass in the medium term. On the other hand, the second pillar consists of permanent factors related to the adjustment of the global economy towards low-emission factors, reducing the impact on the environment – says the expert.

In Europe, in addition to historically high gas prices, price increases are the strongest contributor to price increases EU CO2 emissions allowance costs ETS. It has increased from €25 per tonne of CO2 in early 2020 to around €75 today. Because of the gas shortage, the prices of this raw material are also on the rise, which in aggregate translate into higher energy prices and higher production prices in many industries. It is also felt by companies in Poland. At the same time, as part of combating the effects of the epidemic, all countries have adopted plans to rebuild the economy, which assumes an increase in investment, which, in turn, leads to an increase in demand for materials and services and an increase in their prices. . In turn, globally, it is accelerating energy production from renewable energy, generating an increase in investments in infrastructure and driving, among other things, an increase in steel prices.

Many industries have found themselves in the face of rising prices, and companies deal with them in different ways. Some of them pass on this growth to end users and even benefit from it – provided this does not translate into a significant reduction in end demand. On the other hand, there are sectors in which the current situation affects the margins, which are caused, for example, by the fact that they have signed contracts without a price standardization clause.

The expert estimates that in the future the price increase will not necessarily slow down, although this does not apply to all products and industries. Items whose prices are temporarily disrupted by the epidemic will be cheaper COVID-19 and one-time factors.

– This price increase and Disrupted supply chains It translates to more difficult conditions for companies to operate and expand, says managing director of PFR TFI’s Foreign Expansion Fund. We can see, however, that all firms that have already decided to expand are now enjoying their benefits, for example thanks to access to cheaper factors of production and the possibility to use cheaper materials abroad. In addition, companies operating abroad have access to technologies that are often cheaper to manufacture or allow them to achieve certain savings. This generally means that their products can be cheaper for the end consumer.

As the expert emphasizes, the advantage of foreign expansion is the possibility of diversifying the sources of suppliers. Long-term external relationships also help secure supply chains and may limit price shocks recently experienced by, among other things, the steel industry and enterprises based on access to microprocessors. In the latter case, manufacturers of electronics or vehicles have become convinced of the importance of external relations to maintain production continuity. The shortage of microprocessors has prompted many companies to become interested in more flexible supply chains and to develop direct relationships, for example with semiconductor manufacturers.

Every moment of foreign expansion is good, due to the fact that we live in a dynamically changing economy. We have a lot of uncertainty, which also opens up new investment opportunities – says Masij Babanu.

Statistics show that Polish companies are more and more interested in foreign expansion – not only export, but also capital expansion. Despite the economic slowdown, the value of direct investments abroad was also high last year and amounted to PLN 5 billion (compared to PLN 7.1 billion in 2019). A survey conducted by the ICAN Institute among companies located in overseas markets showed that three-quarters of them recorded an increase in sales or stabilized abroad during the pandemic. Almost half of them confirmed that their business in other markets developed better at that time than in Poland. 35 percent said they had entered at least one foreign market.

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