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The Warsaw Voice » Business » December 3, 2008
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Divergent Growth Forecasts
December 3, 2008   
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The Polish government is sticking with its 4.8-percent economic growth target for the country next year despite increasingly pessimistic projections from foreign financial institutions.

As the financial crisis spreads across Europe, analysts at international financial institutions are revising downward their GDP growth forecasts for Poland.

In its November OECD Economic Outlook report, the Organization for Economic Cooperation and Development (OECD) slashed its economic growth projection for Poland from 5.9 to 5.4 percent in 2008 and from 5 to 3 percent in 2009. Despite the sharp decrease, Poland's growth rate next year would still be the second highest in Europe, after Slovakia's, according to the OECD. The organization expects that in 2010 Poland's economic growth will accelerate to 3.5 percent.

The OECD report warns that the European Union as a whole is facing what may prove to be its most severe recession since the early 1980s, coupled with a major rise in unemployment. The OECD projects that the combined GDP of EU member states will grow by 1.4 percent this year and then contract by 0.4 percent in 2009.

Merrill Lynch analysts are more optimistic. In their latest projection, they put Poland's 2009 GDP growth rate at 3.3 percent, down from 4 percent in their previous projection. According to Merrill Lynch, the financial crisis has changed the global environment and the prospects of emerging markets, including Poland. This will have an adverse impact on these countries' exports and domestic demand, although some countries will be harder hit than others.

GDP growth in the emerging markets will fall far below 5-6 percent, according to Gary Dugan, chief investment officer for Europe, Middle East and Africa at Merrill Lynch Global Wealth Management. If these economies grow by 2-3 percent it will still be quite a high rate compared with other countries, yet not high enough to save the emerging markets from trouble, Dugan said. He added that economic growth below 5 percent would mean job cuts in emerging markets.

The Morgan Stanley investment bank assesses Poland's economic prospects in a similar way. The bank has revised downward its 2009 GDP growth projection for Poland from 4.6 percent to 3.5 percent due to a deteriorated outlook for exports and investment as well as tension on the credit market.

Meanwhile, a forecast released in mid-November by JP Morgan stirred much controversy. The bank projects that Poland's growth rate next year will be only 1.5 percent. Some euro-zone economies are shrinking rather than only slowing while the global economy is heading towards recession, JP Morgan analysts said. This explains why some other European economies will be growing at a slower pace or will even face a recession, they added. As Poland has the largest internal market in the region and its domestic demand is strong, its economy will continue to grow, though at a much slower pace than so far, JP Morgan analysts said.

After releasing its projection JP Morgan was sharply criticized and even accused of manipulation in Poland-especially as a few days later it turned out that JP Morgan Securities had been involved in controversial dealings on the Warsaw Stock Exchange.

At the end of the Nov. 12 trading session, when the closing prices for listed stocks were being fixed, someone started to buy shares in large quantities, soaking up around zl.130 million worth of stocks from the market. As it later turned out, that person was acting on behalf of JP Morgan Securities. As a result of the high demand just before the end of the session, the WIG20 blue-chip index, which was losing over 9 percent at the time, suddenly regained over 4 percent.

Commenting on JP Morgan's projections and what happened on the Warsaw Stock Exchange, Waldemar Pawlak, the Polish deputy prime minister and economy minister, said, "Such projections, not supported by any evidence, and manipulation on the stock market are dealing a blow to the Polish economy." Pawlak said the issue should be explained.

But the most pessimistic forecast for Poland came from the BNP Paribas bank in late November. The bank projects that Poland's GDP will grow 0.4 percent in 2009 and 1.4 percent in 2010. BNP Paribas analysts say the main factor behind this predicted sharp slowdown is that Poland's main trade partners will be in recession next year, a fact that is bound to hit Polish exports and lead to slower growth in corporate investment, along with a deterioration on the labor market at the beginning of next year. Another factor is the global banking crisis, BNP Paribas says. Banks and financial institutions across the world have sustained heavy losses, which constrains their lending activity, especially with regard to companies and economies that are already heavily indebted. According to BNP Paribas, all Central and Eastern European countries are in the same predicament, although Poland has probably been less affected than Hungary, Romania and Bulgaria. BNP Paribas analysts say Poland will overcome its economic troubles earlier than its neighbors.

Poland's deputy economy minister Adam Szejnfeld disagreed with BNP Paribas. "Someone who projects such a sharp drop in GDP growth should not be taken seriously," Szejnfeld said. "It is completely absurd. The minimum growth level we can expect is 3.5 percent."

Pawlak was even more optimistic. "If domestic demand and corporate investment continue at their current level, the 4.8 percent GDP growth rate in 2009 [as fixed in the budget bill] is realistic," he said.

But commentators say the government will probably revise its ambitious target sooner or later. "All scenarios within the 3.5-4.5 percent range are being taken into account," the finance ministry said in a statement recently. "The latest macroeconomic data will be essential to making the final decision."

According to unofficial sources, the government plans to revise downward its 2009 GDP growth target to 3.8 percent.

Andrzej Ratajczyk

"If domestic demand and corporate investment continue at their current level, the 4.8 percent GDP growth rate in 2009 [as fixed in the budget bill] is realistic:"
Waldemar Pawlak
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