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The Warsaw Voice » Business » October 28, 2009
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Improving Forecasts
October 28, 2009 By Andrzej Ratajczyk   
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Encouraged by the performance of the Polish economy, international financial institutions and banks have been raising their country forecasts.

Just a few months ago, many reputable financial institutions were anticipating recession in Poland or stagnation at best. Thankfully, those forecasts have been wrong so far. Poland was the only EU member state to boast positive economic growth in the first half of this year. According to data from the Central Statistical Office (GUS), the GDP grew by 1 percent over the six-month period and by 1.1 percent in the second quarter. Poland did even better in the numbers from the Eurostat statistical office of the EU, which cites seasonally adjusted GDP. Preliminary Eurostat data show that in the second quarter, the Polish economy grew by 1.4 percent year-on-year, while the GDP of the whole EU declined by 4.8 percent. The indications are that Poland will continue its economic growth both this year and in those to come, as suggested by the latest estimates from various institutions which are much more optimistic than earlier forecasts.

In May, the European Commission predicted Polish GDP would decrease by 1.4 percent this year, but in September, the Commission's analysts reassessed and raised their forecast by 2.4 percentage points. According to the latest EC forecast, Poland will be the only European country with positive economic growth this year and moreover, it will exhibit the most dynamic economy of all OECD countries. The second-best OECD country, Australia, is set to grow by around 0.5 percent. The economy of the eurozone will shrink by 4 percent, the analysts say.

IMF more optimistic
At the beginning of October, the International Monetary Fund (IMF) also raised its GDP growth forecast for Poland. According to the IMF, the Polish economy will grow 1 percent this year and 2.2 percent next year. Earlier, the IMF predicted the Polish GDP would decline by 0.7 percent this year and grow by 1.5 percent in 2010.

HSBC Bank has revised its 2009-2010 growth forecast as well, stating the Polish GDP will grow by 1 percent this year and 2 percent next year. According to the Erste Group in Germany, the GDP growth rate in Poland will increase from 1.2 percent this year to 2.6 percent next year, but trouble lies ahead. Erste analysts say that after 2010, the growth rate will be influenced by the shrinking value of investment that will negatively reflect on production. Erste estimates that compared with 2005-2007, the number of investment projects may decline by as much as 40 percent. "Lower investment not only has a negative effect in the short run, but may also lead to a slump in production over an extended period of time," the Erste report says.

Forecasts released by the European Bank for Reconstruction and Development (EBRD) in mid-October indicate that the Polish GDP will rise by 1.3 percent this year and 1.8 percent in 2010, after 4.9 percent in 2008. In May, the EBRD forecast a zero-percent GDP growth rate this year and an increase by only 0.8 percent next year. "Poland will have the best results in Central Europe this year," the annual EBRD Transition Report 2009 says. "This year, the economy of Poland has proven to be more immune to the credit crisis that has harmed other countries. At the same time, Poland has not resisted the global slowdown. In the coming years, Poland's economic growth will not live up to its potential, hindered by lower buying power among the populace and more restrictive financing conditions. The quality of the credit portfolio and employment will deteriorate."

According to EBRD analysts, any rebound of the Polish economy will depend on the foreign demand and trust in financial markets. "To a large extent, long-term prospects depend on progress in important structural reforms that encompass spending within the fiscal policy, privatization and activities aimed at improving the business environment and raising the low employment among the working-age population," the EBRD report says. "A new and reliable plan concerning conversion to the euro could help stabilize expectations and support the mid-term goal of fiscal consolidation."

EBRD analysts estimate that the overall economy of Central and Eastern Europe will shrink by 6.3 percent this year, while the anticipated revival in 2010 will be feeble and irregular. Average economic growth in 2010 will reach 2.5 percent with significant differences among individual countries.

Escaping recession
The BNP Paribas bank also has an optimistic outlook for the Polish economy. BNP Paribas analysts predict that Poland will remain the only EU member state unaffected by recession this year. Economic growth will reach 0.9 percent, and rise to 1.8 percent next year. Poland will return to the path of faster growth around 2011, when according to BNP Paribas the Polish GDP will reach 2.8 percent thanks to higher exports and investment. Consumption will continue to increase at a slower rate because of relatively high unemployment and a slow rise in real income. BNP Paribas expects a gradual decrease of the inflation rate from 2.8 percent in 2009 year-on-year to 0.4 percent in 2012. Contributing factors will include a wider demand gap, deflation in the eurozone and the end of the depreciation of the Polish currency. The pertaining risk factors in the inflation department (both up and down) are regulated prices and prices of food and fuel.

Interestingly enough, all the forecasts compiled by international financial institutions and banks are more optimistic than those released by the Polish government. The Ministry of Finance predicts a GDP growth at 0.9 percent this year, whereas the draft budget for next year, adopted by the government and forwarded to the parliament, anticipates economic growth to rise by 1.2 percent in 2010.

Among other factors, the improved forecasts are a result of better economic conditions in industry. According to the Central Statistical Office, production in industry in September was lower by a mere 1.3 percent than in September 2008, while compared with August, it grew by 15 percent. The 12-month decline rate is clearly slowing down and the trend is becoming permanent. The Polish economy is evidently past the worst. The increasingly positive forecasts of economic growth are based on solid foundations.
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