Country Report Poland July 2008

Outlook for 2008-09

• 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. 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. Inflation will fall only slowly in 2009.
• The current-account deficit will continue to widen, from 3.8% of GDP in 2007 to more than 5% of GDP in 2009.

Monthly review

• Following the referendum vote in Ireland against the EU's Lisbon treaty, the president has refused to sign the treaty. The government, which has secured parliamentary approval, continues to press the president to sign.
• Negotiations with the US over the proposed location of US interceptor missiles in Poland have still not been concluded, with the Polish authorities continuing to demand that Patriot missiles also be based in Poland.
• The government's planning framework for the 2009 state budget forecasts the deficit narrowing to Zl 18.2bn (US$8.2bn), and slow growth in non-EU spending.
• At its meeting at the end of June the monetary policy council (MPC) raised official interest rates by 25 basis points, taking the key policy rate to 6%. The central bank is now more pessimistic about the outlook for inflation.
• Industrial output was weak in May, but this may reflect the timing of public holidays rather than a sharp slowdown in economic growth.
• Consumer price inflation rose to 4.4% in May, and domestically generated inflation continues to quicken. However, the first signs of an easing in labour market conditions may now be appearing.
• The current-account deficit widened further in the first quarter. In addition, a large "errors and omissions" outflow may indicate that the real current-account deficit is higher than the official figures currently suggest.

Source: Country Report