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The Warsaw Voice » Business » February 6, 2008
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Still Going Strong
February 6, 2008   
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Despite the turmoil on global financial markets, Poland is not threatened by a recession, economists say. Most projections show that the country's GDP will grow by around 5.5 percent this year.

According to the Central Statistical Office (GUS), the Polish economy grew by 6.5 percent last year. While this high growth rate is unlikely to continue in 2008, it will still be much higher than in most other countries in Europe. Deputy Finance Minister Stanisław Gomułka says that, despite the recent turbulence on financial markets, the 2008 GDP growth rate will stay close to the 5.5 percent target set in the budget bill. "There will be no problem if the rate is closer to 5 percent rather than 5.5 percent," Gomułka said.

The slight deceleration in GDP growth is likely to be accompanied by higher inflation. "We expect inflation to range from 4 percent to 4.5 percent in the first quarter before it subsides in the second half of the year. The average annual inflation rate should be around 3.5 percent," Gomułka said.

The Gdańsk Institute for Market Economics (IBnGR) has put the 2008 growth rate at 5.4 percent. The economy is expected to grow faster with each quarter, from 5.1 percent in the first quarter to 5.7 percent in the fourth quarter. According to the IBnGR, in 2009, GDP growth will be slightly slower, though it should not drop below 5 percent. The slower growth rates in 2008 and 2009 are attributable to deteriorated global economic conditions and greater inflationary pressure in Poland.

International institutions are moderately optimistic about the Polish economy. Radosław Bodys, a Merrill Lynch economist specializing in Central Europe, says there will be no major slowdown in Poland's economic growth. "We expect a growth rate of 5.3 percent. In the worst-case scenario, if the European economy grows at a much slower rate than expected, the Polish GDP will expand by no more than 4 percent," Bodys said. He added the latest financial market turmoil is unlikely to have a negative impact on what happens in Poland because the influence of the stock market on the Polish economy is not as strong as in more developed countries. "The average Polish household does not invest as much money in stock as the average U.S. household," Bodys said. "Of course, the bearish trends on international stock exchanges may have an adverse effect on consumption, but in Poland this impact will be offset by factors such as reduced social insurance contributions."

According to European Commission experts, in 2008 Poland will be one of the fastest growing economies in the European Union. The commission's projections put the country's growth rate at 5.6 percent in 2008 and 5.2 percent in 2009. Poland entered 2008 with excellent macroeconomic figures and optimistic forecasts. Investment and consumption are expected to remain the main driving forces behind economic growth this year. Consumption has been boosted by a steady increase in employment and pay raises. The European Commission expects that unemployment in Poland will decline to 6.4 percent in 2009, a level below the EU average.

In the EU as a whole, exports will still be an important factor of growth, the European Commission says. But as the euro has gained considerably against the dollar, EU companies have lost much of their competitive edge. Additionally, the economic slowdown in the United States, which is Europe's most important partner, is likely to affect demand for EU goods. The commission says that a major drop in EU exports in 2008, including exports to the United States, could have a negative impact on GDP growth in EU countries. The commission is predicting that the EU's average growth rate will be 2.4 percent this year.

Global economic growth will still be relatively fast despite the weakening of the U.S. economy, the commission says. This is largely thanks to fast growth in African countries as well as India and China. In the EU, growth should remain at a relatively high level, though slightly lower than in previous years.

Paweł Wojciechowski, head of the Polish Information and Foreign Investment Agency (PAIiIZ), says that foreign direct investment in Poland will not be hampered by adverse trends around the world. Much as last year, Poland's 2008 FDI is expected to exceed 15 billion euros.

Entrepreneurs are no less optimistic than economists, as indicated by regular market sentiment surveys conducted by the central bank. The bank's latest business climate report, published in late January, reads that businesspeople expect the current economic upswing to continue throughout the first quarter.

The central bank's research shows that, despite supply tensions and a considerable uncertainty about future trends, entrepreneurs remain optimistic about most factors, including demand, production, investment and employment. The only major problem is a deteriorated outlook on exports and their profitability. This can be attributed to a stronger zloty, which has weakened the competitiveness of Poland's exports, the bank says. Respondents also expect a considerable increase in labor costs and the prices of raw materials.

Andrzej Ratajczyk
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