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The Warsaw Voice » Business » June 11, 2008
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Still Going Strong
June 11, 2008 By Andrzej Ratajczyk   
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The economy is still growing rapidly. In the first three months of this year, the country's gross domestic product grew 6.1 percent in real terms, according to the latest data.

The finance and economy ministries predict that the GDP growth rate for the first half of the year will be around 6 percent.

Meanwhile, economists have been predicting a slowdown in the Polish economy for some time now. According to the International Monetary Fund, the Polish economy will decelerate to 4.9 percent this year and 4.5 percent next year.

So far macroeconomic data has not confirmed these forecasts. Preliminary data by the Central Statistical Office (GUS) show that GDP grew 6.1 percent in the first quarter compared with the same period last year. "According to preliminary forecasts, the GDP growth rate should stay high in the second quarter, at about 6 percent, with 5.5 percent for the whole year," said Deputy Finance Minister Katarzyna Zajdel-Kurowska.

Today few economies in Europe are growing as fast as Poland. Practically all the countries in the region are slowing down-except for Slovakia, where GDP grew 8.7 percent in the first quarter, largely due to foreign direct investment. Lithuania also grew faster than Poland in the first quarter, at 6.9 percent, but the Lithuanian economy is losing momentum. The two other Baltic states-Estonia and Latvia-cannot compare to Poland any longer, their economies showing serious signs of overheating. Inflation in Estonia and Latvia is in double-digit territory and economic growth has all but halted. The Czech economy has also slowed down more markedly than the Polish economy, mainly due to weakening demand at home.

Domestic demand was the main driving force of Poland's economic growth in the first three months of this year. Consumption grew by 5.6 percent in year-on-year terms. This is an optimistic sign after a meager 3.7-percent growth rate in the fourth quarter of last year. Growing wages and decreasing unemployment, which according to the European Union's statistical office, Eurostat, stands at just 7.7 percent, should keep consumption at a high level. Investment also grew rapidly in the first three months of this year in year-on-year terms, at 15.7 percent, down from 17.6 percent in the last three months of last year. Some economists say that entrepreneurs' readiness to invest may weaken in the second half of the year.

Rapid economic growth has had its side-effects, though, the most painful being price growth. On one hand, companies have been forced to raise prices because labor costs are growing. On the other hand, they have increased the prices of their goods and services to take advantage of strong demand. Inflation in April stood at about 4 percent, but economists expect the rate to go up further due to growing prices for energy raw materials, regulated prices, and demand outpacing supply.

Stanisław Gomułka, a former deputy minister of finance now chief economist at the Business Centre Club, says an inflationary danger may be posed by rapidly growing imports of consumer goods, which may bring about a substantial increase in the current-account deficit in two to three years.

Forecasts for next year are slightly less optimistic, though economists from the CASE foundation say 5.5 percent GDP growth is attainable in 2009. They say the slowdown in the global economy will be temporary and global GDP growth will accelerate next year. Consumption is expected to be the key driver of the Polish economy in the coming quarters. In the first quarter of this year, consumption was supported by rapidly growing wages and pension adjustments, CASE says. Given the substantial wage growth, consumer spending is unlikely to fall substantially either this year or next.

Investments are less certain. Deteriorating prospects for the global economy, a worsening situation on the Warsaw Stock Exchange and growing interest rates could discourage entrepreneurs from taking on new projects, CASE says.

Exports are the most difficult to predict. In the first three months of this year, Polish exporters coped surprisingly well despite a strong zloty, experts say. But this may be because market trends in the euro zone, Poland's main trading partner, were still quite good in the first three months, many economists say. Trends in the euro zone are expected to deteriorate significantly in subsequent months, which may affect Polish companies' sales abroad.

The Polish economy is growing slower, but the GDP growth rate will continue to be relatively high, according to a recent report by the Polish Academy of Sciences' Institute of Economics (INE PAN). According to the report, GDP growth this year will reach 5.7 percent, and domestic demand will continue to be the key driving force of the economy. Inflation will still be high, at about 4 percent, the institute says.

Domestic demand will be the main growth factor, according to the institute. Its growth rate will stay at a level exceeding the GDP growth rate, at about 7.4 percent for the whole of 2008, the report says. According to the institute, GDP growth will also be supported by personal consumption, which is expected to grow 5 percent this year, and by investment, which is expected to grow 18 percent. On the other hand, growth will be reined in by inflation, tension on labor market, and a further appreciation of the zloty.

Unemployment will fall below 9 percent by the end of this year, the institute says. However, the improving situation on the labor market is accompanied by a shortage of qualified workers in some sectors. This leads to pay demands and increased labor costs, according to the report. The institute expects wages to grow 5.5 percent this year, with industrial production increasing by 8.1 percent, 1.5 percentage points less than last year.
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