Investment growth slowed markedly in the third quarter of 2008 after being relatively high in the first half of the year. Investment growth has been affected by the crisis on financial markets, restrictions in access to loans, reduced foreign investment and psychological barriers to investment caused by uncertainty about future economic developments.

In January-September 2008 investment spending in constant prices by companies employing more than 49 people was by 7.9% higher than a year before. Investment growth has been slowing: in the first half of the year investment increased by as much as 18.6%. Investment in electricity generation, gas and water supply increased. Companies also invested in oil processing but investment was much smaller than last year in almost all sectors of the economy. Investment by foreign-owned companies accounted for around 38% of the total investment spending in January-September 2008. The share and the value of investment by foreign-owned companies was lower than a year before.


In October 2008 industrial sales were only 0.2% higher than in October 2007. In October 2007 the increase was 10.8 year on year. This weak result shows that Polish industry is not immune to the downturn on global and European markets.

In recent months industrial production figures changed considerably from month to month. After weak results in May, industrial production rose by 7.2% year on year in June, which suggested the sector’s return to a growth path. August saw a drop in production but in September production was up 7% year on year. The results for October were very weak. Many segments of the market are unstable, which affects production figures. In October 2008 industrial sales were higher by only 0.2% than in October 2007. In the manufacturing industry output was up by 1.3% year on year, in the mining and quarrying industry down by 8.3% and in the electricity, gas and water supply sector down by 9.7%.
In October, output was higher year on year in 13 industrial sectors of the total 29 sectors. Thanks to strong growth in previous months, in the 10 months to October industrial sales were up by 6% year on year. A high increase in production, though lower than in January-September, was recorded by manufacturers of medical and precision instruments, radio and television equipment, machines and equipment, and transport equipment. The tobacco, textile, clothing, leather, and wood industries recorded a drop in production in January-October 2008.
Labour productivity in the industrial sector measured by sales per employee was by 3% higher than in January-October 2007, with employment higher by 2.9% and the average gross monthly wage up by 10.5%. In 2006 labour productivity rose by around 10% and in 2007 by 6%. Statistics for successive months of 2008 suggest that the rate of growth in labour productivity is weakening. It is disquieting that wage growth outpaces growth in productivity as this may make Polish companies less competitive and reduce their profitability.

In November 2008 the outlook for the manufacturing sector was negative for the first time since December 2002. Domestic and foreign orders were expected to decrease in the next three months. The outlook for the financial situation was negative. A three-month employment projection was pessimistic and the scale of job cuts will be larger than expected in October.

Manufacturers signalled a drop in orders, due to the weakening of foreign and domestic demand. Stocks of finished products were regarded as too high, with surpluses recorded in stocks of wood products, metals and metal products and chemicals. Producers of radio, television and telecommunications equipment said their stocks were not high enough. Companies expected a drop in prices.

Innovation activity of industrial companies in 2005-2007

Research on innovation activity in industry shows that in 2005-2007 the share of businesses introducing innovative products and processes was lower than in 2004-2006: 36.7% against 42.5%.
In 2005-2007 the highest share of innovation companies was recorded in the tobacco, oil processing and chemical industry: respectively 77.8%, 76% and 65.2%.
In 2007 outlays on innovation activity in industry were higher by 21.7% compared with 2006 but the percentage of companies spending on innovation was lower. Average spending per company was much higher: PLN7.1 million in 2007 against PLN4.9 million in 2006. The largest amount of money was spent on machines and technical equipment (58.8% of all outlays). Only 8.1% was spent on research and development. The companies financed their innovation activity mainly from their own resources (74.1% of all outlays) while bank loans accounted for 14.3% of the outlays.
The following industries had the largest share in total spending on innovation in 2007: car industry (12.6%), energy industry (12.4%), food industry (11.1%), metallurgical industry (8.3%). In 2005-2007 around 21% of industrial companies worked on joint research and development projects or other innovation projects with other companies and institutions against 23.9% in 2006. Almost one third of the companies worked with suppliers of equipment, materials, components and software.