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The Warsaw Voice » Business » January 9, 2008
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Optimistic Forecasts
January 9, 2008 By Andrzej Ratajczyk   
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Most forecasters are optimistic: Poland's economy will continue to grow fast in 2008-though at a slightly slower rate than last year. However, both prices and wages are expected to grow faster.

The past two years have been good for the Polish economy. In 2006, the country's gross domestic product grew by 6.2 percent and the growth rate for 2007 is being put at 6.5 percent, according to preliminary data. While this high rate of growth cannot be maintained this year, Poland will still be growing faster than most other European Union economies, experts say. According to projections by both the Ministry of Finance and many independent analysts, the economy will grow around 5.5 percent this year.

Experts at the National Bank of Poland (NBP) say the economy grew 6.5 percent in 2007, while both 2008 and 2009 are likely to see around 5.3 percent GDP growth. "In the coming quarters, the country's fast GDP growth is expected to continue, driven by a rapid increase in gross fixed capital formation and personal consumption," the NBP said in a report.

Macroeconomic Highlights
preliminary data for 2007 and projections for 2008
GDP growth (%)6.65.1
Inflation (%, year-on-year)2.53.7
euro/zloty rate3.773.50

The NBP says that investment spending will increase by 20 percent in 2007 over 2006. In the following years, investment will continue to grow at around 10 percent, the bank says, largely due to an inflow of foreign direct investment and EU structural funds. According to the NBP, domestic consumption will rise by 8.6 percent in 2007 to stay at 6.5 percent on average in the years to follow. "The continuing revival on the labor market and the decrease in social insurance and tax burdens will translate into a fast increase in household incomes," the NBP report reads. "Incomes from self-employment will also continue to grow at a fast rate."

Consumption is expected to increase markedly in 2008 as a key driving force behind the economy, alongside investment. Another reason for optimism is that a large amount of money will be transferred to Poland this year from EU coffers for 2007-2013. In addition, Poland still has around zl.19 billion to spend from the pool of EU funds it received for the 2004-2006 period. The country's expenditures under the 2008 budget bill are planned at zl.35 billion. Foreign direct investment reached around 15 billion euros in 2007, according to preliminary data.

Andrzej Malinowski, president of the Confederation of Polish Employers, says the economy will continue to grow at a relatively fast pace. "But the situation of entrepreneurs will change due to regulatory changes," he says. The minimum wage will rise to zl.1,128 a month and labor costs incurred by employers will fall by 2 percentage points because obligatory social insurance contributions made by employers for their employees will be lowered from 6.5 to 4 percent of the gross monthly wage.

In 2008 Poland's businesses will "face adverse trends on the labor market," Malinowski says. They will have problems recruiting new employees and will have to deal with a further increase in wages, something that has already undermined their competitiveness. Experts expect real wages to grow more than 10 percent in the first half of 2008, a rate that will subsequently slow down in the latter part of the year.

Employees will be earning more than in 2007, which means they will also be spending more, experts say. Retail sales are expected to rise by 15 percent in 2008 over 2007. The bad news is that most goods will be more expensive this year than in 2007. The finance ministry projects that prices will go up by 2.3 percent, yet some analysts argue that the increase may be much higher than that. In the final months of 2007, inflation reached 4 percent. To stifle inflation, the Monetary Policy Council (RPP) has been increasing key interest rates. This, in turn, means that bank loans will be increasingly expensive, experts say.

consumer inflation (%)
Nov. 20060.6
Nov. 20073.6
Nov. 20082.3*

* Finance ministry projection

Cigarettes will go up in price due to higher excise tax, a consequence of Poland's EU membership. Cigarettes are expected to be around 15 percent more expensive this year.

Electricity bills are also expected to go up by 5 to 10 percent, and businesses will probably be more affected than households because in their case prices are not regulated or subject to approval by the Energy Regulatory Office.

To offset the expected price hikes, the average gross monthly wage will rise by 3.6 percent from 2007 in real terms to zl.2,843, the finance ministry says.

One reason why wages will be higher is that the obligatory social insurance contributions made by employees fell by 2 percentage points as of Jan. 1, to add to a previous decease of 3 points (from 6.5 to 3.5 percent) last July. Consequently, employees will now be paying only 1.5 percent of their gross wages as a social insurance contribution.

Pensions, including those collected by farmers‚ are projected to grow by 5.6 percent on average this year.

Last year marked a turbulent time for global financial markets, and there is every indication that the same will be the case this year. "In the coming months we may continue to witness major fluctuations on financial markets, including the Warsaw Stock Exchange, but its WIG index is likely to rise by more than 10 percent over 2008," said Sebastian Buczek, president of Quercus Towarzystwo Funduszy Inwestycyjnych. "As for internal factors, what worries us most are the increasingly high interest rates and a very strong zloty, which is having a very adverse effect on the competitiveness of exporters. On the other hand, we should not succumb to pessimism. The situation on global markets is likely to return to normal in the coming months, and the prices of Polish company shares are increasingly attractive. Open-ended pension funds have been attracting new funds every month, and in the case of investment funds one can also expect buyers to return to the market after a period of caution."

Corporate sector wage growth (%)
(in relation to the same month of the preceding year)
Nov. 20063.6
Nov. 200712
Nov. 20083.6*

* Finance ministry projection
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