Poland Business Forecast Report Q3 2009

Publication Date	June 2009
Publisher	Business Monitor
Product Type	Report
Pages	60
ISBN Number	1745-0667
Product Code	BMI03946

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Summary

We have long maintained that the Polish economy has been running 6-9 months behind the eurozone (in economic as opposed to financial terms), and as such, though our global outlook projects a trough in H109 for most developed economies, we believe that the most severe decline in Polish growth will likely occur during Q209-Q309. While the outlook for the Polish economy certainly looks grim for the coming quarters, we stress that given the lack of systemic weakness in the banking sector (limited exposure to toxic assets and relatively prudent lending in previous years) and being less trade integrated than the likes of the Czech Republic, the economy will enjoy a fairly prompt recovery. Indeed, we hold to our view that the Polish economy remains one of (if not) the best positioned economy in the region to weather the global financial crisis and come out the other end relatively unscathed. To be sure, this is reflected in our relatively favourable 3.5% average real GDP growth forecast for 2010-2013.

Though the ruling Civic Platform (PO)-led coalition government continues to ride on a wave of strong public support, we caution that the administration's ambitious policy agenda is likely to incur further setbacks during its term. Indeed, given the severity of the global economic downturn in 2009, and with Poland lacking immunity from the collapse in international trade and waning investment appetite, policy will likely remain focused on shoring up the economy, particularly efforts to cushion the blow on employment and household wealth from the unfolding recession.

Tentatively indicating that a significant correction to Poland's balance of payments is underway, the latest data for February show a EUR525mn current account surplus; the first monthly surplus since September 2006 and marking the largest outturn since the beginning of the National Bank of Poland (NBP)'s data series in 2001. Though monthly balance of payment data is notoriously volatile and subject to frequent revision, we nonetheless believe that given sustained zloty weakness and the collapse in consumer confidence towards the end of Q109, the current account shortfall will deflate through 2009. Indeed, we forecast the deficit reaching 3.5% of GDP in 2009, narrowing further to 0.5% by 2013.

Having being dealt a severe blow during the second half of 2008 as risk aversion spiked, the Polish zloty has since started to make up for lost ground, appreciating by around 10% against the euro since mid-February. While we expect the zloty to strengthen in the short term, provided that the global bounce sustains momentum, we believe that the pressures will be more balanced over the medium term. To be sure, though the zloty's use as a liquid instrument (and benchmark) to gain exposure to the emerging Europe region will foster further gains as risk sentiment improves, the global credit shortage and potential for further monetary easing will anchor the magnitude of further gains.

Content

Executive Summary
- Recession To Reach A Trough In Q209-Q309
- SWOT Analysis
- BMI Political Risk Ratings
Chapter 1: Political Outlook
- Domestic Politics
- Government Struggling To Meet Ambitious Policy Agenda
- With the Polish government abandoning its previously austere fiscal budget, and having failed to satisfy its ambitious timeTable for euro adoption (which targeted ERM-2 membership in H109), we caution that further delays to the government's reform agenda are likely
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Recession To Reach Bottom In Q209-Q309
- We believe that the collapse in consumer spending in the following months will likely tip the Polish economy over the edge by mid-year
- Balance Of Payments
- Balance Of Payments Correction Underway
- The emergence of the first monthly current account surplus since September 2006 in February is supportive of our view t hat Poland's balance of payments is undergoing a significant correction
- Monetary Policy
- Monetary Easing On The Backburner For Now
- The National Bank of Poland held its key reference rate on hold at 3.25% in April, and is likely to hold fire on further monetary easing through the remainder of H109
- Economic Policy
- Government Will Fail To Meet Euro Adoption TimeTable
- In line with our view, the Polish government's ambitious timeTable for euro adoption now looks unlikely to be satisfied
- Exchange Rate Policy
- Zloty Appreciation To Lose Momentum By End-2009
- Having endured a precipitous decline during H208 and through the early months of 2009, the Polish zloty has since started to pare its losses against the euro, appreciating around 10% from its February low
Chapter 3: 10-Year Forecast
- The Polish Economy To 2018
- Favourable Growth Dynamics To Remain
- We believe the Polish economy will continue to expand at a healthy clip over our ten-year forecast period, with average annual real growth of 3.3% during 2014-2018. This will allow for significant real convergence gains to be realised
Chapter 4: Special Report
- The Outlook For Global Banking
- Business Environment Rating Outlook
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- Institutions
- Infrastructure
- Market Orientation
- Operational Risk
Chapter 6: Key Sectors
- Retail
- Executive Summary
- In November 2008 the biggest increase in sales (38.7%) was in clothes and footwear. Furniture, radio & television equipment and household appliances recorded an increase of 28.8%
- Consumer Electronics
- Executive Summary
- Poland's domestic consumer electronics devices market, defined as including computing devices, mobile handsets and video audio and gaming products, was estimated to be worth around US6.5bn in 2008
Chapter 7: BMI Global Assumptions
- Global Assumptions
List of Tables
- Table: Polish Political Overview
- Table: ECONOMIC ACTIVITY
- Table: BALANCE OF PAYMENTS (Euro)
- Table: MONETARY POLICY
- Table: Long-Term Macroeconomic Forecasts
- Table: LOAN -TO-DEPOSIT RATIOS, Selected States
- Table: LOAN GROWTH (% CHG Y-O-Y), Selected States
- Table: COMMERCIAL BANKING BUSINESS ENVIRONMENT RATINGS, SELECTED STATES
- 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: Key Retail Indicators
- Table: Consumer Electronics Overview
- Table: GLO BAL ASSUMPTIONS
- Table: GLO BAL & REGIONAL REAL GDP GROWTH
- Table: EMERGING MARKETS
- Table: COMMODITIES