Country Report Poland November 2009

Outlook for 2010-11

• 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.
• However, 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 continue to adopt a more liberal approach to economic policy than its predecessor, but the PO's hopes of winning the presidential election in 2010 make radical changes unlikely.
• Real GDP growth is forecast to pick up to 1.9% in 2010 and 2.6% in 2011 from an estimated 1.2% in 2009.
• Contained wage growth and gradually tighter monetary policy will allow annual average inflation to fall in 2010-11 from an estimated 3.4% in 2009.
• We estimate that the current-account and trade deficits narrowed sharply in 2009. The current-account deficit is forecast to expand as a share of GDP in 2010-11 as imports rise faster than exports and income debits increase.

Monthly review

• The government appears to have emerged relatively unscathed from accusations linked to the recent "gambling affair" against prominent members of the PO.
• The US vice-president, Joe Biden, visited Poland briefly in October in an attempt to send a clear signal that both sides were committed to maintaining close co-operation on security, defence and political matters.
• The budget deficit in January-September stood at Zl 21.5bn (US$6.8bn), larger than the original full-year 2009 plan by over Zl 3bn, and equivalent to 79% of the revised full-year target.
• Given expected difficulties in narrowing budget deficits, the government plans to use privatisation proceeds and dividends from state-owned enterprises to limit the increase in the public debt.
• High-frequency economic indicators for the third quarter of 2009 suggest that GDP growth picked up slightly in July-September from 1.1% in April-June.
• However, leading indicators continue to move sideways, supporting the view that economic growth beyond the fourth quarter may revert to a more subdued pattern.
• In September headline inflation fell below the upper bound of the central bank's tolerance range (3.5% year on year) for the first time since February.