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The Warsaw Voice » Business » November 12, 2008
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Good Forecasts for Poland
November 12, 2008 By Andrzej Ratajczyk   
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The Polish economy will slow next year, but will still grow much faster than the European Union economy as a whole.

According to the European Commission's forecasts released last week, the EU economy will expand by a mere 0.2 percent next year, underlining the extent to which the economic crisis in the United States has spread overseas.

"Only half a year ago we hoped that the European economy would be able to take a different track," said Joaquin Almunia, EU commissioner for economic and monetary affairs. "Now we know it is impossible; the interdependence is too strong."
The Commission predicts the Irish economy will be hit hardest this year, experiencing negative growth of -1.6 percent. In 2009, the countries to suffer the most will be Latvia and Estonia. EU experts expect that the two economies will contract by 1.1 percent and 1.2 percent respectively. Ireland, Spain and Britain will also be in negative growth territory, while the economies of Germany, France and Italy will be stagnant, with growth rates at zero percent.

Meanwhile, the outlook for Poland is quite good. Although the country's growth projection for 2009 was revised downward from 5 percent to 3.8 percent, Poland will still be the EU's fourth fastest-growing economy after Slovakia, Romania and Bulgaria. This year, Poland's GDP is expected to rise by 5.4 percent.

The Commission believes Poland's economic growth in 2009 and 2010 will be weaker than previously projected due to a slowdown in investment demand and household consumption. The weakening investment and household consumption will bring import growth down to 5.7 percent in 2010, reducing the negative contribution of net exports to GDP growth.

In 2008-2009, imports will increase respectively by 9.0 percent and 6.6 percent, while exports will grow by 6.1 percent this year, only 3.9 percent next year, and 5.6 percent in 2010. As a result, the current-account balance will deteriorate, with the deficit widening from 5.2 percent of GDP this year to 6.2 percent in 2010.

Although consumer sentiment will worsen, domestic demand will continue to be strong, thanks to personal income tax cuts scheduled for 2009 and a previous increase in wages, as well as a substantial decrease in unemployment. The economy will be driven by the consumer.

According to the Commission, Poland is relatively immune to the financial crisis because the country's financial system is not strongly tied to the global market and is even self-sufficient to a large extent. The Polish banking system includes mainly universal banks that rely on deposit operations as their core business. Higher borrowing costs are no problem for them. But small and medium-sized banks which acquire funding mainly on foreign markets may suffer.

The Commission's projections for Poland's debt in 2008-2010 are also favorable. General government gross debt is expected to fall from 43.9 percent of GDP this year to 43.1 percent in 2010. The ratio of the budget deficit to GDP is expected to rise slightly from 2.3 percent this year to 2.5 percent in 2009 and 2.4 percent in 2010.

The unemployment rate is projected at 7.3 percent for both this and next year and 7.8 percent in 2010. The slowdown in the economy will have a favorable impact on inflation, which is expected to decrease. The harmonized index of consumer prices (HICP) is expected to reach 4.3 percent year on year in 2008, 3.5 percent in 2009, and 2.6 percent in 2010.

According to Katarzyna Zajdel-Kurowska, deputy finance minister, the Commission's projections confirm that the foundations of the Polish economy are strong. They also strengthen the credibility of Poland's timetable for euro-zone entry. "The projected drop in the growth rate to 3.8 percent in 2009 from 5.4 percent this year is largely the result of an expected weaker growth in exports due to an economic slowdown in the euro zone, Poland's main trade partner," Zajdel-Kurowska said in a commentary on the European Commission's projections. "The consumer and investment demand projections are similar to the Finance Ministry's projections included in the 2009 budget law."

Yet despite the Commission's weaker growth projections for Poland and pessimistic forecasts released by the National Bank of Poland in its Inflation Report in late October, the Polish government has not revised its official forecasts, which set Poland's GDP growth at 4.8 percent next year. The central bank expects that Poland's growth rate will fall sharply from 5.1 percent in 2008 to 2.8 percent in 2009 and then will rise again to 3.6 percent in 2010. The bank also projects that growth in domestic demand will decline to 5.5 percent in 2008, 2.4 percent in 2009, and 3.0 percent in 2010.

For the time being, there are more optimists than pessimists among Polish economic analysts, who believe that the situation will not be as bad as the central bank predicts. The World Bank also expects that the Polish economy will grow quite fast next year-by 4 percent. World Bank experts say that Poland has stable economic foundations and a strong financial system, and that the economy is additionally buoyed by the government-adopted "roadmap" for euro-zone entry.
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