Country Report Poland

Outlook for 2008-09

• The coalition government of the liberal-conservative Civic Platform (PO) and the agrarian Polish Peasants' Party (PSL) offers good prospects for political stability, at least in the short term.
• The PSL's demands for special treatment for its supporters are nevertheless likely to increase over time. As a result, the coalition may not survive a full parliamentary term, leaving the PO to govern as a minority administration.
• The government will adopt a more liberal approach to economic policy than its predecessor, but radical changes are unlikely.
• Economic growth is forecast to slow from 6.6% in 2007, to 5.4% in 2008 and 4.3% in 2009, as external demand weakens and a tighter monetary policy weighs on domestic demand.
• Rapid wage growth and higher food prices will push consumer price inflation up from 2.5% in 2007 to 4.2% in 2008. Weaker demand pressures should allow inflation to drop to 3.5% in 2009.
• The current-account deficit will continue to widen gradually, rising from 3.7% of GDP in 2007 to 4.2% of GDP in 2009.

Monthly review

• The PO-led government continues to enjoy high levels of popular support, but the first signs are emerging of some impatience with the government's lack of concrete achievements in its first six months in office.
• The monetary policy council of the National Bank of Poland (the central bank) left official interest rates unchanged in May, but comments suggest that the reference rate will rise by 25 basis points, to 6%, in June.
• Real GDP growth was 6.1% year on year in the first quarter of 2008, only slightly slower than in the fourth quarter of 2007. Household consumption and fixed investment continued to be the main drivers of growth in 2008.
• Industrial output rose strongly in April, dispelling fears that the weak figures for March signalled the start of a significant economic slowdown.
• Consumer price inflation was 4% year on year in April. However, wage pressures remain strong, and, even though the growth of food and fuel prices has been easing, measures of underlying inflation continue to increase.
• Exports are growing unexpectedly strongly, but the rapid growth of imports, as well as higher profits earned by foreign-owned firms, are causing the current-account deficit to widen steadily.