Poland Business Forecast Report Q2 2009

Publication Date	March 2009
Publisher	Business Monitor
Product Type	Report
Pages	66
ISBN Number	1745-0667
Product Code	BMI03510

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Summary

Recession Looms In 2009

Sources of growth will be few and far between in 2009 as the slowdown in international trade hits the trade account, while consumer and investment spending recede concomitant with a deterioration in domestic and external fundamentals. Consumers, in particular, which have provided the backbone for the Polish economy in previous years (accounting for around 80% of nominal GDP), are in for a rougher ride this year. Although we expect Poland to dip into recession in 2009, we believe that the economy will outperform most of the emerging European economies. Indeed, given that household and banking sector leverage has been relatively modest compared to the likes of Bulgaria, Ukraine and the Baltics, combined with broad political stability and a credible central bank, Poland is only likely to endure a mild recession, coupled with a fairly spritely recovery.

What is more, the Polish economy looks set to fare better than regional peers Czech Republic and Hungary, which are forecast to contract by 2.1% and 3.4, respectively this year.

In a bid to maintain economic stability and ward off a more severe downturn, the Polish parliament approved a savings plan worth PLN19.7bn (1.5% of forecast 2009 GDP) on February 3. Though governments across Europe have come under increasing pressure to spend out of the fiscal budget in order to buttress domestic demand, the Polish government appears to be more concerned about preserving economic stability than offsetting the slowdown in consumer and investment spending.

Stabilising the fiscal deficit at the planned PLN18.2bn may prevent a deterioration in risk aversion among investors who otherwise may view unfavourably a proliferation in government spending and gaping fiscal deficit. Ensuring fiscal stability will in turn prevent an escalation in the government's external borrowing costs which could otherwise emerge alongside a surge in risk aversion.

We have long maintained that Poland's gaping current account deficit would undergo a period of adjustment in 2009 as consumption cools and domestic liquidity dries up. We still hold to this view and we now stress that given the pace at which international trade has already wound down, the shortfall on the trade and current accounts are set to contract further and faster than we originally anticipated. Specifically, we expect the current account deficit to narrow to 2.8% of GDP in 2009 (having originally projected a 5.4% outturn) from an estimated 6.0% in 2008, receding further to 0.6% by 2013.

Headline inflation sank to 3.3% year-on-year (y-o-y) in December from 3.7% in November, and marks the fourth consecutive month in which consumer price growth has eased. What is more, inflation is now back inside the 1pp tolerance range of the central banks' 2.5% inflation target - the first time since October 2007. Core and headline inflation have also converged owing to the easing of food and energy price pressures. With prices across the commodities complex set to remain under pressure through 2009 as global consumption comes off the boil, headline and core inflation are likely to track more closely. As such, we believe that, the erosion of core inflationary pressures will prove instrumental in pulling headline inflation down further.

Content

Executive Summary
- Recession Looms In 2009
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- Pressure To Loosen Fiscal Policy Will Build In 2009
- The Polish parliament has approved a savings plan worth PLN19.
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Recession Looms In 2009
- A flash estimate provided by the Central Statistical Office shows Polish economic growth slowing to 3.0% y-o-y
- during Q408 from 4.8% the previous quarter.
- Monetary Policy
- Monetary Easing: 150bps Down, 150bps To Go
- In a clear sign of the National Bank of Poland's commitment to propping up domestic demand, the central bank
- slashed its key policy rate by 75bps on January 27, having delivered a cut of the same magnitude the previous
- month.
- Balance Of Payments
- Current Account Adjustment: Fast And Hard
- While we hold to our view that Poland's current account deficit will undergo a period of adjustment over the
- medium term, we stress that the pace of this adjustment now looks set to be faster than we originally anticipated.
- External Debt
- Deleveraging To Drive Down External Debt
- While Poland's nominal stock of gross external debt continued to edge higher during Q308, the rate of
- accumulation has started to slow, and is set to ease further through 2009.
- Fiscal Policy
- Anti-Crisis Package To Ward Off Stability Risks
- The Polish prime minister and finance minister have announced a new anti-crisis package for the economy worth
- US$31.4bn, the majority of which will be pumped into the interbank market in order to boost liquidity.
Chapter 3: 10-Year Forecast
- The Polish Economy To 2018
- Favourable Growth Dynamics To Remain Through To 2018
- We believe the Polish economy will continue to expand at a healthy clip over our 10-year forecast period, with
- average annual real growth of 3.0%. This will allow for significant real convergence gains to be realised.
Chapter 4: Special Report
- China
- A Seismic Upheaval In 2009?
- One of the biggest - and least discussed - 'wild cards' that could rear its head in 2009 is dramatic political
- upheaval in China.
- United States
- Europe
- The deteriorating global macroeconomic outlook, high levels of leverage, and a broken business model will
- combine to spell trouble for the financial services sector in 2009.
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- Institutions
- Infrastructure
- Market Orientation
- Operational Risk
Chapter 6: Key Sectors
- Freight Transport
- Executive Summary
- Although the legal framework for the Polish transport sector is in place, issues remain with regards to the
- financing of infrastructure improvements and the transformation of state-owned operating companies.
- IT
- Executive Summary
- Poland is expected to maintain its momentum as one of the CEE region's fastest-growing IT markets over the
- 2008-2013 forecast period, with several million euros flowing into the country as part of EU programmes.
Chapter 7: BMI Global Assumptions
- Global
- Economic Activity
- Monetary Policy
- Commodities
List of Tables
- TABLE: POLISH POLITICAL OVERVIEW
- TABLE: ECONOMIC ACTIVITY
- TABLE: MONETARY POLICY
- TABLE: BALANCE OF PAYMENTS (Euro)
- TABLE: LON G -TERM MACROECONOMIC FORECASTS
- TABLE: Banks' Leverage Ratios
- TABLE: Assets As % of Home Country GDP
- TABLE: Assets As % of Home Country GDP When Eurozone Is Considered 'Home Country '
- TABLE: Exposure As % of Total Exposure To Region
- TABLE: Banks' Foreign Exposure (US$ mn)
- TABLE: Exposure As % of National GDP
- TABLE: BMI BUSINESS AND OPERATIONAL RISK RATINGS
- TABLE: BMI LEGAL FRAMEWORK RATINGS
- TABLE: EUROPE, FDI ANNUAL INFLOWS
- TABLE: BMI TRADE RATINGS
- TABLE: TOP EXPORT DESTINATIONS
- TABLE: FREIGHT CARRIED, DOMESTIC AND INTERNATIONAL, 2006-2013
- TABLE: POLAND'S IT INDUSTRY - HISTORIC DA TA & FORECASTS
- TABLE: GLO BAL ASSUMPTIONS
- TABLE: GLO BAL AND REGIONAL REAL GDP GROWTH, % CHG Y-O-Y
- TABLE: DEVELO PED STATES, REAL GDP GROWTH FORECASTS
- TABLE: EMERGING MARKETS, REAL GDP GROWTH FORECASTS
- TABLE: DEVELO PED MARKET EXCHANGE RATES
- TABLE: EMERGING MARKET EXCHANGE RATES