Country Report Poland July 2009

Outlook for 2009-10

• The coalition government of the centre-right Civic Platform (PO) and the agrarian Polish Peasants' Party (PSL) is likely to remain stable, at least in the short term.
• The PSL's demands for special treatment for its supporters are 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 in 2009 as exports plummet and domestic demand contracts slightly. The economy should return to growth in 2010.
• Slower economic growth and lower wage growth will allow annual average inflation to fall from 4.2% in 2008 to 2.9% in 2009 and 2.3% in 2010.
• We expect the current-account deficit to narrow in 2009 in absolute terms and as a share of GDP, owing to a smaller trade deficit. The current-account deficit is expected to narrow as a share of GDP in 2010.
• If the global credit squeeze were to intensify, access to foreign borrowing would become more difficult, and this could force a sharper adjustment on the economy.

Monthly review

• The winner of the European Parliament election held in early June was the PO, which won 25 of the 50 seats allocated to Poland.
• The government presented the macroeconomic assumptions underlying the 2010 budget. In 2010 GDP growth is forecast at 0.5% and average consumer price inflation is forecast at 1%.
• After leaving the benchmark reference rate unchanged for two consecutive meetings, the monetary policy council of the central bank reduced it by 25? basis points, to an all-time low of 3.5% at its meeting at end-June.
• At the current juncture, concerns over economic prospects are shifting from industrial activity, which is to a large extent determined by trends in Poland's main trade partners, to consumer demand.
• The underlying deterioration in industrial output appears to be moderating: in May seasonally and working-day-adjusted output fell by 5.9% year on year, compared with 7.9% in April (and 12.7% in January).