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The Warsaw Voice » Business » January 7, 2009
ECONOMY
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Growth Forecasts Down
January 7, 2009 By Andrzej Ratajczyk   
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The Polish economy is expected to slow this year, but will still grow much faster than in the European Union as a whole.

Although the first signs of an economic slowdown in EU countries appeared in mid-2008, until the end of November the Polish government did not see any reason to revise its optimistic economic growth projections for the coming years. But after macroeconomic data for the third quarter turned out to be worse than predicted and international financial institutions released a series of pessimistic reports, the finance ministry revised its growth projection-included in the 2009 budget bill-from 4.8 percent to 3.8 percent.

Many analysts say the revised growth figure is still too optimistic and will be difficult to meet. "In 2009, Poland's GDP growth will not be lower than 3 percent," said deputy finance minister Katarzyna Zajdel-Kurowska, adding in the next breath that the ministry is ready to amend the budget law in the course of 2009 should government revenue shrink. "Still, the government may first try to impose discipline on public finances through appropriate measures," Zajdel-Kurowska said.

After revising the expected 2009 GDP growth figure, the government also had to revise downward its annual revenue target by zl.1.7 billion. And in order to keep the planned budget deficit figure at zl.18.2 billion, budget expenditure was revised downward by zl.1.7 billion.

The economic downturn in the West may last for two or three years, but the Polish economy will not slow sharply, Zajdel-Kurowska said, adding that Poland does not depend on loans as much as other industrialized economies. In Poland, household and corporate loans account for around 50 percent of the GDP, while in Western Europe this share is up to 150 percent, Zajdel-Kurowska says.

According to the latest forecasts by the European Commission, the EU economy will expand by a mere 0.2 percent in 2009. The Commission says the Irish economy was hit hardest in 2008, 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 down to 3.8 percent, Poland will still be the EU's fourth fastest-growing economy after Slovakia, Romania and Bulgaria.

Poland's 2008 GDP was expected to grow by 5.4 percent.

The Commission believes that 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 Commission estimates that Poland's investment demand will grow by around 8 percent in 2009 and 2010, while consumption growth will drop from 5 percent in 2006-2008 to 4.5 percent in 2009 and 3.4 percent in 2010.

However, the Commission's projections are among the most optimistic ones. As the financial crisis was spreading across Europe, analysts at international financial institutions started to revise downward their previously optimistic forecasts for the Polish economy.

In its OECD Economic Outlook published in November, the Organization for Economic Cooperation and Development (OECD) revised its GDP growth projection for Poland for 2009 from 5 to 3 percent. One consolation is that, according to the OECD, Poland will be the second-fastest growing economy in Europe, after Slovakia. The OECD expects that Poland's economic growth will accelerate to 3.5 percent in 2010.

Analysts at Merrill Lynch are slightly more optimistic about the Polish economy. They predict that it will grow 3.3 percent this year. Their previously projected figure was 4.0 percent. According to Merrill Lynch, the international financial crisis has changed the global environment and prospects for emerging markets, including Poland. As a result, these countries' exports and domestic demand will suffer, although the impact will vary from one acountry to another.

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

Analysts at JP Morgan have set Poland's growth rate for 2009 at a mere 1.5 percent. The analysts believe that since euro-zone economies are slowing or even contracting and the global economy is headed for recession, the economies of the remaining European countries will also be hit. They predict that growth in Hungary, the Czech Republic and Slovakia will be negative, Romania will record zero growth while Poland-which has the largest internal market in the region and high domestic demand-will continue to grow but at a much slower pace than previously.

BNP Paribas has published the most pessimistic forecast. In late November, the bank said that the Polish economy would grow by no more than 0.4 percent in 2009, followed by 1.4 percent in 2010. According to BNP Paribas, the main argument behind this scenario is that Poland's main commercial partners will be in recession this year. This will hamper Poland's exports and constrain investment activity in the corporate sector, something that will have a negative impact on the labor market as early as the beginning of the year. Another factor behind the expected slowdown in Poland is the global banking crisis. Banks and financial institutions across the world have sustained huge losses. This has led to the erosion of banking capital and constrained lending activity, especially lending to companies and economies that are already highly indebted. This is the case with the whole of Central and Eastern Europe, BNP Paribas says.

According to BNP Paribas, the situation in Poland in this area is better than in Hungary, Romania and Bulgaria, and so Poland should be able to overcome its economic problems sooner than its neighbors.
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