Changes in the Polish economy, such as GDP growth, inflation, unemployment, disposable income, interest
rates or foreign exchange rates, can influence our ability to create value. Whilst these areas
are outside of our direct control, we can use our hedging strategies to mitigate the potential
adverse impact of market movements. Poland’s economic situation improved in 2017 and according
to economic forecasts solid growth should be maintained in the years ahead.
In 2017, the Polish economy grew at a considerably faster pace than in 2016. Real GDP grew by 4.6%.
The positive economic conditions resulted mainly from growth in private consumption supported
by rebound in investments and exports. These growth engines will face difficult challenges in
subsequent years, mainly due to labour shortages and wage pressure. In 2017, household consumption
expenditure remained under strong inflationary pressure, but was stimulated by falling unemployment,
growing wages, ‘500+’ welfare programme and low interest rates. Poland’s economic outlook depends
also on the condition of other European economies and the economic climate in global markets.
According to Bloomberg’s consensus forecast, Poland’s GDP is expected to grow 3.6% both in 2018
and in 2019.
Average annual CPI reached 2.0% in 2017, which was below the inflation target (2.5%). Throughout
the year there was a rise in prices in all main segments of goods and services except clothing
and footwear, with food prices growing the most. Despite growing inflationary pressure, throughout
the year the Monetary Policy Council kept the reference interest rate at the record low of 1.5%
(set in March 2015), upholding an opinion that the current stable economic growth limited the
risk of inflation remaining below the target in the medium term.
Compared with other branches of the economy, the telecommunications sector reported declining profitability
in 2017, which was a result of a decrease in effective prices accompanied by significant capital
expenditures required to upgrade obsolete infrastructure in line with the growing expectations
of customers and ensure service availability in the areas of coverage gaps.
Unemployment and labour costs
The labour market has been positively affected by the general macroeconomic climate, which was reflected
in an increase in employment and a decrease in unemployment to 6.7% (-1.6 pp. year-on-year) at
the end of 2017. At the same time, an increase in wages in the enterprise sector was reported.
Between January and December 2017, these wages were up 5.9% in nominal terms. A further decline
in unemployment may be expected in 2018. However, as it will be approaching the natural rate
of 5%, the existing problems with labour shortage and growing labour costs due to wage pressure
may intensify. This in turn may negatively affect the mood in some parts of the enterprise sector
and constitute a barrier to economic growth by limiting investments.
2017 did not bring any changes in the Central Bank’s policy, and interest rates remained stable at
a historically low level. The Monetary Policy Council is expected to keep interest rates unchanged
in 2018, while taking steps to prepare the market for increases in 2019. However, a potential
increase in interest rates should not have any major influence on the debt service costs of the
Group, as it maintains a high hedging ratio.
Foreign exchange rates
Foreign exchange rate fluctuations affect Orange Polska’s liabilities denominated in foreign currencies and settlements with
foreign operators. However, this influence is greatly contained by a portfolio of hedging instruments
held by Orange Polska. In 2017, Polish zloty gained 4.9% against the Euro and 19.7% against the
US dollar. The Polish currency fluctuations were caused by both internal and external factors.
The funds buying T-bonds and recognising our country’s good economic perspectives returned to
Poland. Low volatility worked well for the local currency. Any potential depreciation of Polish
zloty should not have in medium term major influence on Orange Polska’s liabilities denominated
in foreign currencies or settlements with foreign operators owing to a high hedging ratio.