Country Report Poland March 2009

Outlook for 2009-10

• 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 opposition from the president and the PO's hopes of winning the presidential election in 2010 make radical changes unlikely.
• Year-on-year real GDP growth is forecast to slow sharply, from 4.8% in 2008 to 0.7% in 2009. The economy is forecast to recover in 2010, with growth quickening to 2%.
• 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 will cause the current-account deficit to narrow from 5.4% of GDP in 2008 to 4.7% of GDP in 2009 and 4.2% of GDP in 2010.
• 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.

Monthly review

• The government has recently started to come under increasing pressure on a number of fronts, in particular over its handling of the economic downturn and over disputes concerning the recently appointed justice minister.
• The government is still officially clinging to its ambition for the zloty to enter the EU's exchange-rate system (ERM2) in mid-2009, although signs have emerged that it may be willing to postpone this.
• The National Bank of Poland (NBP, the central bank) cut the key policy rate in February by a further 25 basis points, to 4%, bringing total easing since November to 200 basis points.
• Detailed national accounts data from the Central Statistical Office (GUS) confirmed the slowdown in GDP growth in the fourth quarter of 2008.
• Economic and sentiment indicators paint a broadly negative picture for the first quarter of 2009, albeit to a lesser degree than elsewhere in the region and in the EU in general.

Source: Country Report