Forecasts Revised Downward
October 26, 2012
The Polish economy is expected to decelerate due to the crisis in the eurozone.
The government expects the Polish economy to grow 2.5 percent this year and 2.2 percent in 2013. This means a significant slowdown in the economy, which in 2011 expanded by a healthy 4.3 percent. But some economists say even these revised forecasts are too optimistic because the Polish economy faces many challenges.
Problems at home include a crisis in the construction sector, which employs nearly half a million people. Many of them may now join the crowd of 2 million unemployed nationwide. Meanwhile, Europe continues to struggle with a public finance crisis. Eighty percent of Poland’s exports go to EU countries and the latest deepening of the euro-zone crisis poses a serious threat to Polish companies. More conservative forecasts put Poland’s economic growth rate in 2012/2013 at no more than 2 percent.
Forecasts for both Europe and the world as a whole are far from optimistic. According to the latest World Economic Outlook report published by the International Monetary Fund (IMF), the situation in the global economy has worsened in recent months, leading to a downward revision in economic growth forecasts. In its July forecast, the IMF predicted that global economic growth would run at 3.5 percent this year, followed by 3.9 percent next year. Now the IMF has revised downward its forecast to 3.3 percent and 3.6 percent respectively.
The IMF does not have good news for Europe. This year seven of the 17 euro-zone economies are expected to record a decline in GDP. Overall, the euro-zone economy is expected to shrink by 0.4 percent. In 2013 things will be only slightly better, the IMF says. Euro-zone GDP is expected to expand slightly—by no more than 0.2 percent. However, economies such as Italy, Spain, Greece, Portugal, Slovenia and Cyprus will still be in a recession, the IMF says. Germany, the EU’s largest economy, will grow by 0.9 percent this year and next, according to the IMF economists.
In comparison with other European Union countries, Poland is not doing badly. The IMF predicts that Poland’s GDP this year will grow 2.4 percent. But next year a slowdown to 2.1 percent should be expected. As a result, Poland will be the seventh fastest growing economy in the EU, behind Estonia and Latvia, both of which are expected to grow 3.5 percent; Lithuania (3 percent); Slovakia (2.8 percent); Romania (2.5 percent); and Sweden (2.2 percent).
Ryszard Petru, chairman of the Association of Polish Economists, says the main threat to Poland’s economy is the situation in the euro zone. If there is a deeper recession in the euro zone than is currently projected, Poland’s economic growth could prove to be much slower, Petru says. But it is possible to boost growth by using measures such as attracting foreign investment, strengthening the competitiveness of the economy, privatization and deregulation, Petru says.
Among institutions that have revised their GDP forecasts for Poland recently is Barclays Capital, the investment banking division of Barclays Bank PLC. According to analysts at Barclays Capital, the Polish economy will grow 2.3 percent this year, instead of the previously projected 2.7 percent. The forecast for next year was lowered from 2.1 percent to 1.6 percent. To justify their forecast, the Barclays Capital analysts pointed to the worse-than-expected performance of the Polish economy in the second quarter of this year (GDP growth was 2.4 percent year on year, against market expectations of 2.9 percent and following 3.5 percent expansion in the first quarter) as well as decreased spending on investment projects in the public sector.
The bank also revised downward its forecasts for the euro zone. In 2012, the bank expects the euro-zone economy to shrink by 0.5 percent (rather than the 0.4 percent predicted earlier). In 2013, Barclays Capital expects slow-paced recovery, predicting that the euro-zone economy will expand by 0.3 percent (down from a previous forecast of 0.5 percent).
Fitch Ratings agency also expects a slowdown in the Polish economy. It forecasts 2.5-percent growth both this year and next. In the spring, the agency projected that Poland’s GDP would grow 2.8 percent this year. Fitch said in a statement that it decided to revise downward its projections for GDP growth in Poland to 2.5 percent in both 2012 and 2013, with the possibility of a further deterioration, especially in 2013.
In turn, HSBC bank has revised downward its forecast for Polish GDP growth in 2013 to 2 percent, from the previously predicted 3.1 percent. The bank also lowered its GDP growth forecast for Poland in 2012 to 2.7 percent, from 2.5 percent.
Agata Urbańska, an HSBC economist for Central and Eastern Europe, said in a comment that economic growth in the first half of the year was generally in line with expectations, but the latest monthly economic data points to a bigger slowdown than previously expected. The breakdown of GDP growth in the second quarter was also much worse than expected, with falling domestic demand, Urbańska said. She added that an important factor behind the weakening has been a reduction in inventories and deteriorating indicators of market sentiment among both consumers and businesses. Labor market data was also worse than expected. Additionally, the growth prospects for Europe and the world have deteriorated.
HSBC has revised upward its economic growth forecast for the world by 0.1 percentage point (from 2.1 percent to 2.2 percent) in 2012. According to HSBC economists, developed markets will be growing at a rate of 1.2 percent in 2012 and 2013, while emerging markets will grow at a rate of 4.9 percent and 5.6 percent respectively. The HSBC economists have maintained their 2012 GDP growth forecast for the euro zone at minus 0.6 percent and revised downward their 2013 forecast from plus 0.3 percent to minus 0.1 percent.