Are we past the trough?

Had I been really good at economic forecasting, I would have been much richer, worked less and probably had more time to indulge in hobbies, including blogging. Sadly, predicting economic variables is, needless to say, subject to a lot of uncertainty. Time permitting, I keep track of what is going on in the real economy and on financial markets and spot some sparkles of optimism.

Stock markets, which usually anticipate economic recoveries, have rebounded recently, with the Warsaw Stock Exchange broad market index being some 20% above its low from early October. Some pundits warn it is just a major correction in the bear market, yet upbeat sentiment has definitely taken over recently.

Natural gas and electricity prices on commodity exchanges, though still volatile, have fallen off peaks from September. With natural gas storage facilities across Europe full, the threat of a severe energy crisis has been somewhat staved off. This also gives relief to entrepreneurs from who energy is an important item in the cost structure, except for those who hedged purchases at peaks.

Commodity prices have also adjusted to lower demand, which means, the demand for them might not necessarily fall. Brent crude oil now costs (in USD) roughly as much as before Russia invaded Ukraine.

The last glimmer of hope are PPI (producer price inflation) readouts, which signify decreasing cost pressure for entrepreneurs, which will with a delay of a few months should translate into lower consumer inflation.

Not all signals from the economy are bright. Profits of companies after 3Q2022 keep falling dramatically, which might hamper their investment plans and necessitate lay-offs.

Consumer confidence in Poland is also record-low, with wallets of ordinary people badly hit by prices of most basic goods rising faster than general inflation (+17.9% in October 2022). With negative real average wage growth (around -4% y/y) the discretionary spending must plummet and so far nothing indicates private consumption could recover soon.

Across Europe a big unknown is the threat of energy shortages during the winter. I lack competencies to assess how real that threat is, but if only the most energy-consuming industries are forced to suspend productions, effects of negative supply shock will spill over the entire economy, send inflation up.

In Poland much depends on the influx of refugees from Ukraine, where the Russian tyrant is trying to destroy the infrastructure to deprive civilians of electricity, heat and water during the winter.

Even if the worst has not come over, I believe it is a matter of a few months. Roll on spring!

The warfare has reached Poland

The accidental missile strike incident which took place on Tuesday, was just a matter of time. Given the scale of warfare so close to the Polish border and probability of a human error, the question was not if, but when it would happen. The areas near the Ukrainian border are not densely populated, so it took more than a bit of bad luck that the missile hit grain storage facilities during its working hours. The two men working there were the first Polish civilians to have become the casualties of the Russian invasion.

The Polish government convened quickly in an emergency mode to discuss the event and its implications, while holding off on any public commentary. While many detracted from their restraint, I can praise them for not saying a word too much and refraining from jumping to conclusions. Nevertheless, the official silence gave rise to a flood of fake news on social media, particularly on Twitter. The incident gave the Russian trolls an excellent opportunity to sieve misinformation; the opportunity they instantly grabbed.

Also the foreign press agencies added up to the informational chaos, quoting unverified alleged statements of intelligence officers. On top, the Ukrainian president Zelensky did not act up to the mark, by making unfounded claims the missile was shot by the Russian army. No civilised man blames Ukrainians who defend their territory against the aggressor for the death of two men, but they should not depart from the truth. The president Biden has rightly reproached Mr Zelensky over his premature assertion. Hope the Ukrainian head of state learns from his mistake and avoids next diplomatic botch-ups.

In the first hours past the incident I wondered if NATO passed the test it had been put to. With hindsight I believe senior military officers have acted considerately and held back from overreacting of what had definitely not been an attack on the territories of the alliance.

Sadly, the scenario which I envisaged a few weeks ago, i.e. that Russia will be destroying Ukrainian infrastructure to provoke a humanitarian disaster in colder months, is materialising. Even if the hell of warfare comes to an end (with Russia being defeated, no other outcome can be imagined), it will take a few years before Ukraine recovers from losses and decades before wounds in Ukrainians’ heart heal.

Budapest

I had long yearned to visit the capital of Hungary, yet there always used to be some obstacles on my way. In early October my girlfriend urged me to take a short foray abroad before the end of 2022. I had to forego my reluctance to support in any way the authoritarian regime of Mr Orban (just as in 2019 I renounced my resolution to never invest in government bonds – this has paid me off well, with superior coupons on inflation-linked gilts).

The cost of cheap airline tickets (return ticket with no small hand baggage for mere PLN 130 – such expense does not discourage from flying) and accommodation (PLN 128 per person per night) were actually the only outlays which did not hit the wallet. Maybe except for public transport tickets which were reasonably cheap.

Inflation in Hungary exceeded 20% and this is felt, even after the Hungarian forint depreciated against the Polish currency. Especially the entry tickets to sights had steep prices, but if one wants to get to know the city, such expenses must be borne.

The weather in early days of November was quite nice, with temperature in between +10C and +15C most of the time and hitting +20C in the afternoon on 2 November. If I was to pick one word to describe Budapest, I would choose “drab”. Drabness of the Hungarian capital, nearly everywhere, except for most splendid tourist destinations, is eye-popping. But while taking pics, I attempted to catch the more pleasurable atmosphere of the city.

To the right – a view at Danube river and the edifice of parliament in the distance, as seen from the ascent to the Gellert Hill. The pic taken around an hour before sunset.

The beautifully illuminated parliament building is the iconic landmark of Budapest, looking much better in the darkness that during daylight.

Inside, the building is decorated in typical Austro-Hungarian lavish style, with lots of gold and paintings. The lavishness is actually overwhelming.

The basilica in Budapest, built in the middle of the nineteenth century, also had its wall, ceiling and domes splendidly adorned. This time round I took some effort to tweak with settings of my camera, which had a visible positive impact on the quality of shots.

The basilica has a viewing terrace which overlooks the city which lacks skyscrapers. Here, a view on the Fishermen’s Bastion, the pic taken with > 10x optimal zoom, hence the blob (I lack time to process snaps in the photoshop).

Andrassy Street is definitely the high street of Budapest. The view in which all lines converged towards the horizon took my fancy, hence I bothered to snap the alley…

…From the Victory Square which, like many spots in the Hungarian capital commemorates year 1896 when Hungary celebrated a millennium of its existence. The square brings to mind sights of Berlin…

Another lavish interior is the biggest synagogue in Europe, not destroyed during WW2. It was my first visit to a Jewish temple, set me back nearly the equivalent of PLN 100, but given the expense was one-off, it was worth it!

I also thoroughly recommended the thermal baths in Budapest, yet for obvious reasons, I did not take any photographs there.

Now time to focus on Szlachetna Paczka – less than 4 weeks left before the final weekend and lot of hard work to be put in ahead of my team and me.

Pandemic diary – October 2022

Tuesday, 4 October 2022
Recent days bring a decrease in the number of cases, accompanied by just a minor decline in testing – positivity rate drops well below 30%. I bet the relief will be short-lasting

Wednesday, 5 October 2022
The 7-day average number of new infections in Poland falls below 3,000.

Friday, 14 October 2022
The 7-day average number of new infections in Poland falls below 2,000, for the first time since 21 July 2022, against alleged seasonality. The downward trend is also observed in other European countries.

Monday, 17 October 2022
With nearly no media coverage, adjusted bivalent vaccines against BA.4 and BA.5 are delivered to vaccination centres in Poland. The scarcity is well-visible.

Monday, 24 October 2022
In which I get the second booster. Given the aforementioned scarcity, I had to sign up for a jab in Józefów (15 kilometres, or 21 minutes’ drive from home). With hindsight – no side effects the next day.

Wednesday, 26 October 2022
The 7-day average number of new infections in Poland falls below 1,000, for the first time since 12 July 2022. New infections fall in all European countries, defying the seasonality hypothesis.