Country Report Poland September 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.
• 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 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 grow by 0.7% in 2009, with growth expected to pick up in 2010.
• Slower economic growth and wage growth will allow annual average inflation to fall from 4.2% in 2008 to 3.3% in 2009 and 2.6% in 2010.
• We expect the current-account deficit to narrow sharply in 2009, owing mainly to a smaller trade deficit. The current-account deficit is forecast to widen as a share of GDP in 2010 as imports rise faster than exports.

Monthly review

• Further tensions in the government emerged in late July, after the leader of the PSL, Waldemar Pawlak, criticised the PO in a press interview. However, the prime minister, Donald Tusk, played down Mr Pawlak's comments.
• Although the state (central) budget posted a small surplus in July, the overall fiscal situation remains difficult as revenue growth has been slowing compared with 2008.
• Real GDP grew by 1.1% year on year in the second quarter of 2009, exceeding the market consensus, which had expected growth of around 0.5%.
• Available data for the third quarter suggest that economic activity will continue to post moderate growth, although the recovery looks set to rest on fragile foundations for the foreseeable future.
• Retail sales volumes continued to contract in July, by 0.7 year on year.
• Employment in the enterprise sector contracted in July for the sixth consecutive month, and by the largest amount since the end of 2003.
• Consumer price inflation (on a national basis) rose modestly, to 3.6% year on year in July from 3.5% in June, and has remained in the 3.5-4% range since? March.

This report covers the following industry codes:
SIC Code: 49;70;15
NAICS Code: 22;72;23