Pol­ish econ­omy per­for­mance sta­ble

The Pak Banker - - Front Page -

WAR­SAW

The Pol­ish econ­omy has per­formed well on the back of very strong poli­cies and fun­da­men­tals, but growth is now slow­ing, as a re­sult of developments in the euro zone.

The key pol­icy chal­lenge is to pro­vide sup­port to the econ­omy. Mone­tary eas­ing is there­fore wel­come and fur­ther rate cuts are needed. The pace of struc­tural fis­cal con­sol­i­da­tion is be­ing main­tained, while au­to­matic sta­bi­liz­ers are be­ing al­lowed to op­er­ate, which is ap­pro­pri­ate given the nar­rower fis­cal space avail­able. The bank­ing sys­tem has re­mained strong, but non-per­form­ing loans (NPLs) may re­quire more proac­tive so­lu­tions.

Af­ter ro­bust growth last year, the Pol­ish econ­omy is feel­ing the ef­fects of head­winds from Europe. Growth is moder- at­ing amid weaker ex­port de­mand and con­fi­dence ef­fects on pri­vate in­vest­ment and con­sump­tion, which have com­bined with lower pub­lic in­vest­ment. Eco­nomic ac­tiv­ity is pro­jected to slow fur­ther. Ris­ing un­em­ploy­ment and tight credit avail­abil­ity are expected to weigh fur­ther on house­hold spend­ing. Pub­lic in­vest­ment will continue to de­cline and pri­vate in­vest­ment is expected to re­bound only when un­cer­tainty about ex­ter­nal and do­mes­tic prospects dis­si­pates. Over­all, GDP growth is pro­jected to slow from about 2¼ per­cent in 2012 to 1¾ per­cent in 2013. Risks around this out­look are on the down­side, as a deeper or more pro­tracted slow­down in Europe or a rein­ten­si­fi­ca­tion of the cri­sis would af­fect Poland through sub­stan­tial trade and fi­nan­cial chan­nels.

We wel­come the re­cent cut in the pol­icy in­ter­est rate and see room to continue the mone­tary eas­ing cy­cle. With the econ­omy slow­ing and in­fla­tion pres­sures re­ced­ing, fur­ther cuts in the pol­icy rate are al­ready clearly war­ranted. In the event of a sharper de­te­ri­o­ra­tion in eco­nomic con­di­tions than cur­rently an­tic­i­pated, and given the lim­ited fis­cal space, ad­di­tional eas­ing would be re­quired.

The im­pres­sive fis­cal con­sol­i­da­tion has con­tin­ued, and the draft 2013 bud­get balances fur­ther fis­cal ad­just­ment and sup­port for the econ­omy. De­spite weaker-than-expected VAT rev­enues, the gen­eral gov­ern­ment deficit is pro­jected to drop by 1½ per­cent­age points to about 3½ per­cent of GDP in 2012. The 2013 bud­get rightly con­tin­ues the struc­tural con­sol­i­da­tion (with mea­sures of some ½ per­cent of GDP).

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