The ongoing appreciation of the Polish currency may be burdensome for companies that do not have protection against exchange rate risk.
PKO Bank Polski analysts warn that the ongoing appreciation of the złoty may be painful for companies without protection against exchange rate risk. At the same time, the bank’s experts do not see a significant, negative impact of the strengthening of the złoty on the profitability of companies in our country.
The report “Makro Focus: Will a stronger złoty hurt Polish companies?” recalls that at the end of 2023, the złoty exchange rate in real and effective terms (REER) was the strongest since 2008. From a particularly weak złoty in October 2022, the Polish currency has strengthened by 11.5% against the euro and by 20.8% against the dollar to date.
The observed and expected further strengthening of the złoty should not have a significant impact on the long-term competitiveness of the domestic economy, as long as it results from and is consistent with the prospects for further rapid economic development, solid foundations and stable FDI inflow. However, it may be painful for some industries and companies that do not sufficiently protect themselves against exchange rate risk. Moreover, the combination of rapid nominal wage growth with the appreciation of the złoty leads to a strong increase in wages expressed in EUR and may reduce the attractiveness of locating foreign investments in Poland.
– PKO Bank Polski wrote in its analysis.
The report emphasized that one of the explanations for the limited impact of the exchange rate on the profitability of Polish companies is both natural hedging (exports often require prior imports, which reduces sensitivity to the exchange rate) and active management of currency risk by exporters, including through the use of derivatives. PKO BP experts explained that the nature of links in global supply chains is also important, as well as the fact that most trade is settled in the dominant currency (for Poland, this is the euro), which is accompanied by the relative rigidity of export prices, which are often set on the basis of multi-year contracts.