Poland Business Forecast Report Q2 2008

Publication Date	May 2008
Publisher	Business Monitor
Product Type	Report
Pages	62
ISBN Number	1745-0667
Product Code	BMI00752

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Summary

A Hawkish Year ahead For Monetary Policy Despite the ongoing fallout on international credit markets, and talk of slowing global growth, we hold to the view that Poland's economy will continue to expand at a healthy rate, albeit moderating from 2007's bumper outturn. A key concern going forward will be the ability of the national Bank of Poland (NBP) to stabilise inflation, which has surged substantially in December and January, to .0% year-on-year (y-o-y) and . % respectively, which represents multi-year highs. As a result of sustained price pressures and the need to create a stable inflationary environment ahead of euro adoption (expected in 2012-201 ), we believe that monetary policy will become progressively tighter throughout the year. Although inflationary pressures may well remain elevated going into 2009, we are confident that Poland can still meet the requisites for euro adoption over the medium term.

Following months of bilateral talks and fierce opposition from Russia, Poland looks increasingly likely to accept the US's proposal to base 10 interceptor missiles in its territory. The further strengthening of Polish relations with the US and NATO may create further ructions with Russia, which has remained a staunch opponent of the proposed missile base, with President Vladimir Putin stating that Russian missiles may be aimed at those countries hosting the US defence shield.

The continued widening of Poland's current account deficit did not let up in December, with the latest data provided by the NBP reporting a deficit of EUR1.94bn, an increase of 50.7% y-o-y, and representing a multi-year high for that month. The shortfall continues to widen as a result of Poland's deteriorating external position, which has seen the merchandise trade balance descend further into the red. Although we believe that the current account will stay in deficit over our fiveyear forecast period, we expect it to remain stable within a range of - %. Indeed, we forecast the 2008 deficit to reach 3.7% of GDP, narrowing slightly to 3.5% in 2009.

In keeping with the new PO-led coalition government's pro reform, pro business policy stance, a round of privatisations are due to take place in 2008 which will include power groups enea and PGe. Other privatisations expected to be announced include Bank BGZ, the Warsaw stock exchange, and chemical groups Zaklady azotowe tarnow and Kedzierzyn. That said, not all of the originally planned sales are moving forward. Despite previous plans to privatise PKo Bank Polski in 2008 and 2009, the Deputy Treasury Minister, Michal Chyczewski, stated on January 8 that Poland has no intention of proceeding with the privatisation.

Content

Executive Summary
- A Hawkish Year Ahead for Monetary Policy
Chapter 1: Political Outlook
- SWOT Analysis
- Bmi Political Risk Ratings
- Foreign Policy
- Security Initiatives Temper Russian Relations
- We Believe That with An Agreement over A Proposed US Missile Base Looking Increasingly Likely to Come to Fruition,
- Poland Will Continue to Develop Its Presence in International Security Initiatives
- List of Tables
- Table: Poland Cabinet & Other Key Posts
Chapter 2: Economic Outlook
- SWOT Analysis
- Bmi Economic Risk Ratings
- Economic Activity
- Economic Growth to Moderate
- We Believe That as A Result of Strong Consumer Demand and The Ongoing Growth of Gross Fixed Capital Formation,
- Poland's Economic Performance Will Remain Robust over The Medium Term, Albeit Moderating to A Lower Rate
- List of Tables
- Table: Economic Activity
- Balance of Payments
- Deficit to Remain at 3-4% of Gdp
- despite The Continued Widening of The Current Account Deficit in December, We Believe That This Will Not Pose
- A Significant Risk to Macroeconomic Stability
- List of Tables
- Table: Balance of Payments
- Monetary Policy
- A Hawkish Year Ahead
- We Believe That The Surge in Inflation during The Last Four Months of 2007 Will Spill over into Q108, with
- Inflation Remaining at An Elevated Level
- List of Tables
- Table: Monetary Policy
- Investment Climate
- Short-Term Pain, Long-Term Gain
- We Remain Cautious about Polish Equities over The Short-Term, as Volatility on International Credit Markets
- and The Resulting Bout of Risk Aversion Continue to Play out
- Exchange Rate Policy
- Zloty to Continue Strengthening
- We Believe That The Polish Zloty Will Continue to Appreciate over The Medium Term, on The Back of Strong
- Macroeconomic Fundamentals, A Benign Inflationary Environment and Widening Differentials between Central
- Bank Policy Rates
- List of Tables
- Table: Exchange Rate Policy
- Economic Ratings
- Room for Improvement
- Owing to Poland's Strong Macroeconomic Fundamentals and A Significant Degree of Stability, We Have Calculated
- Its Long-Term Economic Risk Rating at 65.4, Which Remains Competitive for The Region
- Banking Sector Outlook
- Still Opportunity for Growth
- We Believe That Owing to The Sustained Demand for Credit on The Back of Strong Consumer Spending and Investment
- Expenditure, Combined with A Lack of More Sophisticated Financial Markets, There Is Still Ample Room for Further
- Development of The Banking Sector
Chapter 3: Special Report
- Looking beyond 2008
- The Future of The World, in Three Acts
- US: The Rebalancing Act
- We Believe That A Substantial, Multi-Year Shift in The US External Accounts Is under Way. A Weak US
- Dollar and Subdued Domestic Consumption Should Lead to A Narrowing in The US's Structural Current
- Account Deficit
- China: What If We'Re All Wrong?
- Our Core Scenario for China
- We Are Retaining Our Positive Headline Growth Projections for China across The Forecast Period to 2012,
- with Our Expectations of The Continued Success of The Urbanisation Process and Export-Driven Growth
- Model Underpinning Our Assumptions
- Japan: Immigration Key to Long-Term Growth
- Demographic Woes Portend Long-Term Decline
- Immigration Remains The Only Realistic Way That Japan Can Overcome Its Long-Term Economic Challenges
Chapter 4: Business Environment
- SWOT Analysis
- Bmi Business Environment Risk Ratings
- Business Environment Outlook - Q2 2008
- List of Tables
- Table: Bmi Business and Operational Risk Ratings
- Institutions
- List of Tables
- Table: Bmi Legal Framework Ratings
- Infrastructure
- Market Orientation
- List of Tables
- Table: Poland Fdi Inflows
- Table: Bmi Trade Ratings
- Table: Top Export Destinations
- Operational Risk
Chapter 5: Key Sectors
- Defence & Security
- List of Tables
- Table: Government Expenditure on Defence Industry
- Information Technology
- Executive Summary
- The Polish IT Market Is Expected to Maintain Its Momentum over The 2007-2012 Forecast Period with Several
- Million Euros Flowing into The Country as Part of Eu Programmes to Improve Competitiveness
List of Tables
- Table: Poland Industry Forecasts and Historical Data