Recession on the cards?

Those following the US stock market have been reporting that the first half of 2022 has been the worst for investors in the last 30 years. The Nasdaq has lost almost 30 pct, while the Dow Jones and the S&P haven’t fared much better. The Fed has opted for the highest interest rate hikes since 1994 in response to soaring inflation – and this is only one example of a central bank reacting to global price rises: even the Swiss central bank has raised its negative interest rate and the European Central Bank has been sending out signals that rates will rise in the euro zone. Under these circumstances, the talk of a recession is growing louder with such a possibility being suggested by large investment banks as well as the likes of Elon Musk and Warren Buffet. The crucial questions right now are whether economies will slow down as a result of the interest rate hikes and how effective this measure will be at curbing inflation, when considering that over the last 10–15 years economies have been operating in a low inflationary environment and more often than not central banks have actually been attempting to stimulate demand (such as during the pandemic) rather than reigning it in. How consumers, many of whom have never known rapidly rising prices in their adult lives, react is also going to be important. Added to the purely economic factors there is also the war in Ukraine, which according to analysts is set to continue severely dampening any return to optimism on the trading floors. Although the Polish economy has been red hot over the previous quarters, it is also seeing signs of a slowdown that are going to last at least a few quarters. As well as all the worries about consumption and investment, which are important for the construction industry, there are also political questions, because next year elections are going to take place in Poland. As a result, the mid-year falls of around 25 pct on the WIG and WIG 20 come as no surprise. In this regard, the indexes for the construction and real estate sectors have performed much better, having lost only around 8 pct and 13 pct respectively. Analysts are now predicting the end of the golden era for margins in the real estate sector – in the first quarter, average net margins from sales came to around 30 pct, according to Polish stock market journal ‘Parkiet’. Such high profits are the result of some very favourable circumstances between 2020 and 2021 – an accelerating economy and low interest rates, along with relatively low land prices a few years back and prices of materials and labour that were still not too high. Nonetheless, companies remain optimistic. Residential developers listed on the Warsaw Stock Exchange point out that what they offer is often for wealthier clients who have ready cash to hand or who still have a high credit rating, and there still remains a lot of interest from clients after the pandemic. The demand for new homes is especially high when it comes to the private rental sector. Dom Development, the residential market leader, has not ruled out entering this segment. It is true that the company sold 30 pct fewer apartments in the first quarter than in 2021, but this was due to coming off some very high figures from last year. Its margins are still higher than 30 pct, so it is no surprise that that a record dividend pay-out to shareholders has been proposed. GTC is also sharing its profits with its shareholders, while another developer, Echo Investment, is looking optimistically at both the segments it operates in. For offices, it is talking of selling a number of buildings in Warsaw, while in the apartment segment it currently has margins of over 35 pct. The group intends to raise funds from a bond issue to finance its further growth.

Construction companies have recently published their figures on the state of their businesses in the first quarter. Polimex Mostostal, with a portfolio now worth almost PLN 5 bln, has doubled its revenues as well as its EBITDA. Despite problems with the supply of labour and the availability of steel, the company has been aggressively taking part in more tenders – at the end of March it had orders on its books worth a potential PLN 14 bln. Mostostal Warszawa, which is owned by Spanish company Acciona, also wants to take get into the energy market. The group reported an increase in revenue of 43 pct, mainly from its activities in the industrial energy sector, whereas its revenues rose more slowly from building construction and infrastructure. Torpol, which specialises in rail contracts, generated lower revenues, but nonetheless saw an improvement in its gross margins. The company is to take a cautious approach in its bidding for orders from rail operators in Poland, because the current index linking level of the contracts would not cover the costs. Torpol also wants to take part in the tenders for the Solidarity Transport Hub Poland (the major project to build an air, train and road hub between Warsaw and Łódź). Unibep has managed to build up its largest ever order portfolio and, in the face of rising prices, its contracts are to be index-linked with its clients mainly being private companies, which makes negotiating easier. As well as orders to build for developers, contracts for public infrastructure are also being added to its portfolio as well as industrial and energy contracts. The development wing, Unidevelopment, is also optimistic about the future and an independent listing on the stock exchange is also being considered for its subsidiary. Meanwhile, the Warsaw Stock Exchange has said goodbye to Atlas Estate, following a call made by two of the largest shareholders with a combined stake in the company of over 94 pct. Minority shareholders responded positively to this and the company was de-listed. (Mir)