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The Warsaw Voice » Business » March 5, 2008
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Slower but Strong
March 5, 2008 By Andrzej Ratajczyk   
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The Polish economy will slow down a little this year but GDP will still grow at a rate of over 5 percent, according to the Finance Ministry. This is twice as fast as the European Union (EU) as a whole.

The past two years were a very good period for the Polish economy. GDP growth reached 6.2 percent in 2006 and 6.5 percent in 2007. Poland will be unable to maintain such impressive momentum this year, but the expected economic growth rate is still higher than in most other EU member states. The Finance Ministry and a number of analysts predict GDP growth of around 5.5 percent this year. The European Commission (EC) has made a slightly more cautious forecast of 5.3 percent, following its earlier estimate of 5.6 percent.

The lower estimates this year are, in part, due to slower economic growth in the EU as a whole, which is Poland's main trade partner. The EC has lowered its forecast for economic growth in the EU from 2.4 to 2 percent, and from 2.2 to 1.8 percent in the 15 countries of the eurozone. Other reasons are the sudden economic slump in the United States-which stems from the subprime mortgage crisis-and the high prices of raw materials.

"Poland will maintain a high economic growth rate," said Joaquin Almunia, the EU commissioner for economic and monetary affairs. "The growth will get a little slower due to declining external demand, but the domestic market will remain immune to the turmoil on global financial markets."

The EC has also altered its forecasts on inflation, saying that it will reach 3.8 percent in Poland, compared with the previously anticipated 2.8 percent. Almunia said Poland managed to combine high economic growth with a low inflation rate for a long period of time, but now inflation has begun to soar because food and oil prices are rising around the world and salaries in Poland have started going up. "I hope Poland will be capable of maintaining rapid economic growth without raising inflation pressure," he added. EU experts believe inflation pressure will decrease with each quarter of 2008. The annual inflation rate is expected to reach 4.2 percent in the first quarter and drop to 3.2 percent in the last quarter, which would fit with the target set by the National Bank of Poland.

Polish economists also predict a slight slowdown. "The economic growth rate in Poland will decrease in 2008 and 2009," said Michał Dybuła, an economist with BNP Paribas. "Weaker external demand will hamper exports, which, in turn, will curb investment in the private sector. The escalating aversion to risks in the banking sector is an indication of a generally more restrictive policy in granting loans. This will also put limitations on investment outlays, which in six to 12 months will cause a decline on the labor market. Consequently, the rise in consumer spending will be less pronounced."

According to Dybuła, the prospects of slower economic growth and possibly a weaker influx of private capital make it even more essential to use EU structural and cohesion funds efficiently and identify the priorities for their future use. In 2007-2013, Poland will receive around 63 billion euros, which makes it the largest beneficiary of EU funds.

Sławomir Skrzypek, the governor of Poland's central bank, expects the GDP growth rate to decline as well.

"I believe the economy will clearly start slowing down in the first quarter, but I hope this will only be a temporary thing. Still, economic growth this year will be slower than in 2007. Economic growth in 2009 and 2010 will depend on decisions that are made this year and the overall mood in Polish economic affairs."
Sławomir Skrzypek

According to Skrzypek, economic growth in Poland this year will be 5.5-6 percent. "This is a very good figure, but it is important to keep a stable economic growth rate," he said. "Even a lower but stable rate is extremely valuable to us."

The good news is that the situation has improved on the Polish labor market. Data from the EC shows that the unemployment rate in Poland dropped from almost 12 percent to just over 8 percent last year, which was the sharpest fall in the entire EU. According to Polish data obtained through a different research method, unemployment dropped to 11.4 percent, which was still an impressive improvement compared with the preceding years. This trend is expected to continue for another few years, with only slight hindrances caused by a shortage of employees in some sectors. Brussels has also found that young people in Poland have better opportunities to find jobs than they did before.

The continuing dynamic economic growth in the first quarter of 2008 is not only demonstrated by the good news from the labor market. The Central Statistical Office (GUS) reports that sales in January increased by 10.8 percent compared with January 2007. Analysts from the Ministry of Economy estimate sales in February will increase by 11 percent, but by only 5 percent in March because of a smaller number of working days. Production in industry in the whole of the first quarter is estimated to rise by 9 percent.

Year-on-year sales in January rose in 23 out of the 29 branches of industry. The highest increase-32.5 percent-occurred in the production of radio, TV and telecommunications equipment. Sales in the sector of machines and electrical appliances rose by 22.4 percent and in the production of cars and trailers by 22.8 percent. Higher sales were also reported in the production and supply of electricity, natural gas, steam and hot water (13.2 percent) and in metal products (11.5 percent). In the industrial processing sector, sales increased by 11.1 percent compared to January 2007. This data exemplifies the enduring upward trends in consumption in households and capital-goods spending in enterprises.

Production in the construction and assembly sector rose by 6.8 percent in January 2008, compared with January 2007. When seasonal factors are taken into consideration, the figure is 5.6 percent. Production had previously increased by a record 60.5 percent from January 2007 to January 2006. Production in this sector largely depends on the weather, but analysts at the Ministry of Economy predict that sales in the first quarter of this year will be around 15 percent higher than last year.
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