Diversified Polish economy is no match for the slowdown

Diversification is supposed to be the key to a stable economy

Diversification is supposed to be the key to a stable economy and a year ago it was certainly working that way for the city of Krosno in eastern Poland. It was booming thanks to factories making everything from furniture to glass and car parts.

The city is best known for the Krosno glassworks, founded in 1923, which makes a range of products including beer glasses and hand-blown vases.

But last year the company dismissed 1,200 workers because sales to markets such as the US had dropped sharply. And last week it said it was preparing to declare bankruptcy after running into financial trouble, caused in part by the company's decision to hedge its foreign currency exposure, taken last year when the zloty was appreciating. Since then the dollar has risen by more than 70 per cent against the zloty, costing the glassmaker at least 38m zlotys ($10.8m, €8.4m, £7.5m).

The city's largest em-ployer is Nowy Styl, an office furniture maker. But the slowdown in construction in Europe has meant fewer furniture orders.

"The group is trying to adjust production only to received orders. We aren't making anything for the warehouse," says Jacek Steliga, managing director of BN Factory, a subsidiary of Nowy Styl. "Furniture is obviously not a vital good."

Mr Steliga's factory, which employs 160, has dropped from three shifts to two and he now spends a lot of his time scrambling for smaller orders he would normally have overlooked in order to make up for the slump in western Europe.

Just down the road, Leszek Woliszewski, chief executive of FA Krosno, a car parts maker, has also reduced work hours, dropping from five to four days a week, with a commensurate reduction in pay.

"We began to feel it at the beginning of last year, because some of our production is sold in the US and the crisis was felt there first," says Mr Woliszewski.

By November, when the crisis spread to Europe, Mr Woliszewski's sales declined steeply, with shock absorber parts sales falling by 60 per cent and fuel modules dropping by 70 per cent.

"I'm hoping that the dramatic fall will end in a month and sales will stabilise at a slightly higher level," he says, walking through one of his factory halls where most of the machinery now stands silent.

The cutbacks and job losses are a blow to Krosno, which until recently had enjoyed an unemployment rate of 4.9 per cent, one of the lowest in the country.

"We are now seeing the first signs of unemployment," admits Piotr Przytocki, the city's mayor.

Just last year, Mr Przytocki was named the country's best mayor by the Polish edition of Newsweek magazine for his success in promoting Krosno.

The sudden turnround from prosperity to gloom is frightening ordinary people.

"A few thousand people have lost their jobs. All sorts of companies are letting people go. It isn't easy to find other work," says Janusz Szopa, head of the Solidarity labour union at the Krosno glassworks. "If the company folds, it will be a real catastrophe."

Krosno's troubles are part of a wider picture of a sharply slowing Polish economy. Last year the consensus was that Poland was diversified enough to avoid the worst of a global slowdown, and the finance ministry was predicting growth of 4.8 per cent for 2009.

As the economy has decelerated, with exports falling and consumers proving to be less resilient than first envisaged, predicted growth has been reduced to 3.7 per cent and the government is now making contingencies for growth of 1.7 per cent or less.

Source of www.ft.com