Country Report Poland April 2009

Summary

The coalition government of the centre-right 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. The coalition may therefore not survive a full term, possibly leaving the PO to govern as a minority administration.
The government will adopt a more liberal approach to economic policy than its predecessor, but opposition from the president and the PO's hopes of winning the presidential election in 2010 make radical changes unlikely.
Real GDP is forecast to contract slightly in 2009, after growing by 4.8% in 2008. The economy is forecast to recover gradually in 2010, with growth quickening to 1.8%.
Slower economic growth and an easing in labour market conditions will allow inflation to fall back from 4.2% in 2008 to 2.5% in 2009 and 2.2% in2010.
The sharp slowdown in domestic demand is expected to cause the current-account deficit to narrow in 2009-10 from 2008.
If the international financial crisis deepens further, access to foreign borrowing will become more difficult, and this could force a sharper adjustment on the economy.

Allegations of nepotism and unethical behaviour have created rifts within the government at a time of growing tension between the two coalition partners.
However, neither the PO nor the PSL appear to have any wish to see the coalition break up.
Amid a severe economic slowdown, state budget performance has been negative. After just two months of 2009, the budget deficit reached 29% of the annual plan of Zl18.2bn (US$5.3bn).
Since early March, the government has appeared increasingly realistic about the prospect of delaying entry into the EU's exchange-rate mechanism (ERM2), and has tailored its public statements accordingly.
The National Bank of Poland (NBP, the central bank) cut official interest rates, by 25 basis points, for the fifth meeting in a row in March.
Industrial output fell by an average of 14.8% year on year in January-February.

This report covers the following industry codes:
SIC Code: 60;2834
NAICS Code: 52;3254