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The Warsaw Voice » Business » March 27, 2013
Business & Economy
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Poland’s Ratings Rise
March 27, 2013   
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The Polish economy is clearly slowing down, but the country’s credit ratings are rising.

The latest forecast by Poland’s central bank—the National Bank of Poland (NBP)—suggests that the country’s economic growth will decelerate to 1.3 percent in 2013, from 2 percent in 2012 and 4.3 percent in 2011.

The central bank’s projections are more pessimistic than those adopted by the government when setting this year’s budget targets. At the beginning of March, Finance Minister Jacek Rostowski said the government was sticking to its 2.2 percent 2013 GDP growth target included in the budget. “Unlike bank analysts, we do not revise our forecasts every few weeks or months unless there are serious reasons to consider such a revision,” Rostowski said.

According to NBP analysts, the expected slowdown in the Polish economy is largely due to an unfavorable external environment. “The eurozone has been in recession since the fourth quarter of 2011, due to debt problems and the loss of competitiveness by some euro-area countries,” the central bank said in a statement. “The slowdown abroad has been accompanied by a gradual petering out of the impact of the positive factors that kept Poland’s economic growth at a relatively high level until the first quarter of last year.” According to the central bank, EU funds for 2007-2013 are running out, so investment projects co-financed with these funds are also slowing down, while the weakening in Poland’s foreign trade has largely been exacerbated by developments in the German economy, which is the main market for Polish exports. However, in 2015, Poland’s GDP growth should accelerate, the NBP said.

Another piece of good news is that prices are rising at a slower rate. Inflation is expected to fall to a level close to 1.5 percent and stay there. “The reduced inflationary pressure will result from weaker economic growth, which will also negatively affect the labor market and consequently contribute to slower growth in unit labor costs,” the NBP statement said.

A winter forecast by the European Commission for 2012-2014 brings little optimism. According to this forecast, Poland’s GDP is expected to grow 1.2 percent in 2013, followed by 2.2 percent in 2014. The only consolation is that the Polish economy will still be growing much faster than most other EU economies.

While the situation on the financial markets in the European Union has improved significantly since the summer of last year, the level of economic activity in the second half of 2012 was disappointing. Key macroeconomic indicators suggest, however, that the EU’s GDP has bottomed out and will likely accelerate steadily from now on. According to European Commission experts, initially rising external demand will be a factor stimulating recovery. Improvements in domestic investment and consumption are expected later this year and in 2014 domestic demand is no longer expected to be the main driver of growth.

The EU’s predicted 2013 GDP growth is a paltry 0.1 percent, and the eurozone is expected to see its GDP drop by 0.3 percent.

Despite its weaker economic forecasts, Poland enjoys good ratings on financial markets. At the end of February, the Fitch rating agency revised upward Poland’s outlook to “positive” from “stable” and reaffirmed the country’s credit rating of “A minus.” In response to that decision, yields on 10-year Polish Treasury bonds fell below 4 percent. This is a decent level, though still far above those enjoyed by the most credible countries. To compare, German T-bonds yield investors only 1.58 percent. The Swiss and Japanese pay the least in the world for their bonds: yields on 10-year Swiss and Japanese bonds are just 0.7 percent.

Deciding to upgrade Poland’s outlook, the Fitch agency appreciated Poland’s relatively low budget deficit compared with other European countries, at about 3.4 percent of the GDP in 2012, with an expected further decrease to 3.2 percent in 2013 and 2.7 percent in 2014. According to Fitch analysts, Poland’s public debt is stabilizing and expected to fall to 54.5 percent of GDP in 2014 from a peak of 56.4 percent in 2011. Of special importance, according to Fitch, are the medium-term effects of pension reforms in Poland under which the retirement age will be ultimately increased to 67 years for both women and men.

The Polish economy has shown resilience to the eurozone debt crisis and appears to have healthy fundamentals despite the latest downturn, as a result of which Poland’s 2013 GDP growth will likely decelerate to 1.6 percent, according to Fitch. In the near future, Poland is also expected to be helped by the expected recovery in the eurozone and funds available under the European Union’s new budget for 2014-20. In early February, Poland secured a handsome chunk of the EU pie—a total of 106 billion euros between 2014 and 2020.

Meanwhile, Japan Credit Rating Agency (JCR) upgraded Poland’s foreign currency rating from A- to A, and it also revised upward Poland’s national currency rating from A to A +. After the rise, both these ratings have a stable outlook. “After the upward revision of Poland’s outlook by Fitch last week, the upgrade by the JCR rating agency is further proof of Poland’s growing creditworthiness on international financial markets,” the Polish Finance Ministry said in a statement.

Deputy Finance Minister Wojciech Kowalczyk said, “This is the first upward revision of Poland’s credit rating in almost six years, when our rating was raised by the S&P agency. The JCR previously raised Poland’s rating nearly 10 years ago.”
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