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The Warsaw Voice » Business » September 2, 2011
Business & Economy
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Stock Market Turmoil Bodes Ill for Economy
September 2, 2011   
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Tumbling share prices on the Warsaw Stock Exchange amid turmoil on global equity markets and the depreciation of the Polish currency may eventually lead to an economic slowdown, experts have warned.

The downturn on international stock markets in July and August was the most severe since U.S. bank Lehman Brothers collapsed in the fall of 2008. As the fallout hit Poland, some zl.100 billion, or more than $30 billion, “evaporated” from the Warsaw Stock Exchange within just two weeks.

The market value of listed companies fell almost 20 percent, highlighting how vulnerable Poland is to turbulence in the global economy.

The bearish trends on stock markets are bound to affect the Polish economy as a whole. The only question is how strong this impact will be and how long it will last. Analysts say the stock market tumble will be reflected in macroeconomic data for the third quarter, but the Polish economy is unlikely to face a recession or stagnation.

According to Ernest Pytlarczyk, chief economist at BRE Bank, the Polish economy is still in good shape. “Loans, consumption and trends in the construction industry show that the economy is doing well,” Pytlarczyk said. “However, factors such as price shocks, higher mortgage installments or slower growth in Germany may lead to a marked deceleration of economic growth still this year. The fiscal consolidation planned by the government, combined with lower absorption of EU funds, will translate into a further slump in subsequent periods.” Next year Poland’s GDP will grow by 3.2 percent, according to BRE Bank analysts, a figure high enough to protect the Polish economy from debt problems or a bond sell-off.

According to BRE Bank analysts, one of the main problems in the Polish economy will be lower consumption, resulting from price shocks and high mortgage installments. Moreover, the revival in investment may grind to a halt. At the moment, the economy is mainly being driven by infrastructure projects, and there is a high risk that a reduction in these projects will not be fully offset by private investors.

Meanwhile, Moody’s Investors Service agrees that Poland is well positioned to withstand the global turbulence. The agency’s Kirsten Knight told the Polish Press Agency (PAP) that Poland’s economy is relatively resilient, as reflected by its A2 rating with a stable outlook from Moody’s. Although the Polish economy is not entirely immune to global turmoil, Knight said, it is in a good position to weather the storm. The Polish economy is well diversified, and the domestic market is relatively large; debt ratios are improving, and if the government is resorting to borrowing funds it’s mainly credit on the domestic market denominated in the Polish currency with long maturities.

According to Moody’s analysts, Poland’s relatively high credit rating results from its stable macroeconomic environment, mild debt structure and credible monetary policy. On the other hand, the weaknesses of the Polish economy include a large budget deficit resulting from both countercyclical policies and lack of social spending reforms as well as inefficient allocation of funds. Moody’s expects that Poland’s 2011 GDP will grow by 4 percent, followed by 3.7 percent in 2012. Inflation is expected to be 3.8 percent and 2.7 percent respectively.
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