Fer­raris show Poland nar­rows gap as pe­riph­eral Europe weak­ens

The Pak Banker - - Company& -

WAR­SAW: Dante Cinque had buy­ers lined up even be­fore open­ing Fer­rari's first Pol­ish show­room, tak­ing over the War­saw site for­merly oc­cu­pied by the Com­mu­nist Party.

"Poland is much bet­ter than it's per­ceived abroad, in ev­ery way," Cinque, gen­eral man­ager of Fer­rari Warszawa, said in the store on Nowy Swiat Street, which opened in Oc­to­ber. "I get the feel­ing in Poland that wealth is be­ing cre­ated."

Poland passed the Nether­lands in 2009 to be­come the sixth-biggest econ­omy in the 27na­tion Euro­pean Union, ac­cord­ing to ex­chang­er­ate ad­justed fig­ures from the World Bank. The coun­try of 38.2 mil­lion peo­ple was the only one in the EU to avoid a con­trac­tion last year, with growth of 1.8 per­cent. While most na­tions strug­gle to emerge from the worst re­ces­sion since World War II, the World Bank fore­casts growth of 3.5 per­cent in 2010.

Poland's WIG20 blue-chip stock in­dex gained more than 9 per­cent to the end of Novem­ber in dol­lar terms, com­pared with 3 per­cent for the re­gion's bench­mark Stoxx Europe 600 In­dex. Credit Suisse Group AG, Gold­man Sachs Group Inc. and Mor­gan Stan­ley are ex­pand­ing in War­saw as do­mes­tic and for­eign com­pa­nies list on the War­saw Stock Ex­change and the govern­ment plans to sell 40 bil­lion zloty ($13.2 bil­lion) of state as­sets in 2010-2011.

The coun­try's $430 bil­lion econ­omy has been pro­pelled by man­u­fac­tur­ers of prod­ucts such as car parts and ma­chin­ery that are ex­ported by Ger­many; tax cuts from the be­gin­ning of 2009 that slashed the top per­sonal in­come tax rate to 32 per­cent from 40 per­cent; the 9.7 per­cent drop in the zloty against the euro since the be­gin­ning of 2008, which has helped make Poland's com­pet­i­tive po­si­tion; and 67 bil­lion eu­ros ($88.2 bil­lion) of EU grants ear­marked through 2013.

"We've built a bas­tion of growth," Prime Min­is­ter Don­ald Tusk said in a Nov. 16 press con­fer­ence on the third an­niver­sary of tak­ing up of­fice. Poland is pre­pared for a "test of wills," he said, re­fer­ring to the EU's next seven-year bud­get, which may pit the bloc's largest aid re­cip­i­ent against U.K. Prime Min­is­ter David Cameron, who wants to curb spend­ing to re­duce Bri­tain's record bud­get deficit.

The spread be­tween Pol­ish and Ger­man 10year bonds nar­rowed on Dec. 16 to a sev­en­month low of 290 ba­sis points. Costs to in­sure Pol­ish five-year debt were at 146.500 ba­sis points as of yes­ter­day. That com­pares with 496.305 for Por­tuguese credit de­fault swaps, in­di­cat­ing that in­vestors are bet­ting that the east Euro­pean coun­try is less likely to de­fault than the euro mem­ber. Fitch Rat­ings down­graded Por­tu­gal's debt rat­ing one level on Dec. 23, say­ing the econ­omy faced a "de­te­ri­o­rat­ing" out­look. Av­er­age gross wages have in­creased by al­most a third over the last five years, statis­tics of­fice data show.

"I have clients who have 10 Fer­raris in the garage," Cinque said, adding that most of his cus­tomers own com­pa­nies and work in in­dus­tries in­clud­ing banks and real es­tate.

Un­em­ploy­ment was 9.7 per­cent in Oc­to­ber, ac­cord­ing to EU fig­ures, com­pared with 14.1 per­cent in Ire­land and 20.7 per­cent in Spain. The econ­omy grew at an an­nual rate of 4.2 per­cent in the third quar­ter, the fastest pace in two years, buoyed by the 9 per­cent in­crease in re­tail sales in Oc­to­ber.

Liebrecht & wooD is help­ing build Plac Unii, a 550 mil­lion-zloty re­tail and of­fice com­plex in War­saw, to cap­i­tal­ize on ris­ing con­sumer de­mand. The com­pany is bet­ting that the coun­try will turn eco­nomic gain into po­lit­i­cal clout, adding to the at­trac­tive­ness of real es­tate in the cap­i­tal.

"In 10 to 20 years, Poland will be one of 'the' coun­tries in Europe," said Marc Lebbe, a War­saw-based man­ag­ing di­rec­tor at Liebrecht & wooD. "There's no rea­son why it shouldn't wield as much power one day as France or Spain or Italy." Do­mes­tic pol­i­tics are still scarred by an April 10 plane crash, which killed Pres­i­dent Lech Kaczyn­ski and 95 oth­ers in Smolensk, Rus­sia, as they trav­eled to honor Poles mur­dered by Stalin's se­cret po­lice. Some of the vic­tims be­longed to the main op­po­si­tion party, Law & Jus­tice, run by Kaczyn­ski's twin brother, Jaroslaw, who said the govern­ment bears "moral re­spon­si­bil­ity" for the ac­ci­dent.

The gen­eral govern­ment deficit has more than quadru­pled since 2007, swelling this year to 7.9 per­cent of gross do­mes­tic prod­uct, ac­cord­ing to EU fore­casts. The Fi­nance Min­istry es­ti­mates pub­lic debt will reach 53.2 per­cent of GDP this year com­pared with 44.8 per­cent in 2007.

Fitch Rat­ings said in a re­port last month that Poland should curb its deficit to avoid a cred­i­trat­ing re­duc­tion. If the coun­try's pub­lic debt rises above 55 per­cent of GDP, it would breach the sec­ond of three le­gal thresh­olds an­chored in Pol­ish law, trig­ger­ing manda­tory bud­get cuts.

Those le­gal lim­its, tougher than the EU's, keep bond­hold­ers "re­laxed," even with Poland set to run the EU's sixth-widest bud­get gap next year, said David Hauner, head of emerg­ing-mar­ket eco­nom­ics at Bank of Amer­ica Mer­rill Lynch in London. -Bloomberg

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