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The Warsaw Voice » Business » December 30, 2014
Business & Economy
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Optimism Amid Uncertainty
December 30, 2014   
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According to most forecasts, in 2015 the Polish economy should grow by about 3 percent, a similar rate to 2014. But predictions for GDP growth this year are burdened with a large dose of uncertainty, mainly due to the ongoing conflict between Ukraine and Russia.

Data from the Central Statistical Office (GUS) shows that in the third quarter of 2014 Poland’s gross domestic product was 3.3 percent higher than a year earlier. While this rate of growth was slightly slower than in both the second and the first quarters (3.5 percent and 3.4 percent respectively), it was nevertheless the best third quarter since 2011. As a result, following the third quarter, Poland retained one of the highest GDP growth rates in Europe. To compare, the two largest eurozone economies, Germany and France, remained stagnant, with economic growth at 1.2 percent and 0.4 percent respectively.

All the indications are that in 2014 as a whole Poland’s economic growth was at least 3 percent (the government has forecast 3.3 percent). Economists expect similar growth in 2015, although the economic situation in Poland in the coming months will depend on political developments in the region. In recent months, several institutions have revised downward their forecasts for Poland. The European Commission, in its autumn economic forecasts, put Polish 2015 GDP growth at 2.8 percent. These forecasts are worse than the government’s projection of 3.4 percent and also worse than the European Commission’s estimates from half a year ago (3.4 percent).

Pierre Moscovici, EU Commissioner for Economic and Financial Affairs, says Poland’s economy has decelerated due to weaker external demand. According to EU experts, the Polish slowdown is due to two key factors. The first factor is the slowdown in the West, including in Germany. The second factor is the conflict between Ukraine and Russia, the direct impact of economic sanctions and the slowdown in these two economies, which translates into reduced imports from Poland.

The latest GDP growth forecasts for 2015 are worse than projections from just six months ago, and not only for Poland, but also for the eurozone (1.1 percent instead of 1.7 percent) and for the EU as a whole (1.5 percent instead of 2 percent). The main reason is worse forecasts for Germany, France and Italy.

More optimistic about Poland’s future economic growth is Mark Mobius, executive chairman of Templeton Emerging Markets Group, who believes that in 2014 Poland’s GDP grew 2.7 percent and that in 2015 it will expand by 3.5 percent. Just as with most Central European countries, exports to Germany have a big impact on the Polish economy. According to Mobius, the consequences of the conflict between Russia and Ukraine for the Polish economy are difficult to predict. It is estimated that the ban on the import of food products to Russia alone will shave 0.2 percent off the Polish GDP growth rate (food exports to Russia account for 0.6 percent of Poland’s total exports). In terms of investment, it is possible to expect a significant increase in spending on infrastructure in 2015-2016, when new EU funds come online, according to Mobius.

Forecasts by analysts from Bank of America Merrill Lynch suggest that Poland’s GDP will grow 3.2 percent in 2015, followed by 3 percent in 2016. Poland’s relatively strong economic performance should attract capital investors to the country. In a report by BofA Merrill Lynch with investment recommendations for 2015 regarding individual emerging markets, the bank’s analysts changed their recommendations for investors in Poland from “underweight” to “neutral.” According to economist Raffaella Tenconi, Poland is a beneficiary of a policy of monetary easing by the European Central Bank and an expected interest rate cut by the National Bank of Poland will strengthen the country’s economic growth in 2015. Meanwhile, the significant cash resources currently in the possession of pension funds should prompt them to buy shares, according to Tenconi.

According to Marcin Fiejka, head of the Emerging Europe Equity desk at Pioneer IM in London, Poland has low political and fiscal risk at the moment. Nor are there any significant risks for the Polish economy being generated by tighter global financing conditions and the slowdown in the Chinese economy. Against the background of global emerging markets, Poland looks neutral on the whole. But it fares well compared with its peers in the region. It is in a position to attract cash flows from volatile markets and has strong economic fundamentals.

Even though Polish shares are not cheap, Fiejka says, the Polish market offers relatively low risk, which is bound to catch the attention of global players. Moreover, Poland is not a raw material exporter, so it is free from the risk of falling prices. While keeping interest rates low, translating into a low cost of capital, the Polish market will benefit from the expected improvement on global markets. And this improvement will be moderate, but stable.

According to Fiejka, the Polish economy will also benefit from improved trends in the European Union. In addition, it seems that foreign investors do not think of Poland in terms of the problems of the Russian economy. Being a large and secure economy, Poland can become a beachhead for capital fleeing from the Russian market. It will also benefit from EU funds.
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