Poland Business Forecast Report Q4 2007

Publication Date	August 2007
Publisher	Business Monitor
Product Type	Report
Pages	50
ISBN Number	1745-0667
Product Code	BMI00289

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Summary

New Government To Bode Well For Reform

Following weeks of political turmoil, early Polish parliamentary elections are almost a certainty, which, despite a short-tem surge in fiscal spending, is likely to have a positive impact on the administration's domestic reform agenda and long-term economic growth going forward. We expect that a new administration will bring fresh impetus to reforming the country's public finances, which have come under increasing pressure since the Self-Defence (SO) and the League of Polish Families (LPR) inclusion in the coalition in 2006. Aside from a revitalisation of the privatisation process, a new government is also likely to re-launch the country's efforts to adopt the euro over the coming years. We believe that full-year real GDP growth will come in at 6.6% in 2007 (up from 6.3% in 2006), yet on the back of further monetary tightening and an expected deceleration in eurozone economic activity, will slow to 5.5% in 2008.

In our view, Prime Minister Jaroslaw Kaczynski expelled the SO and LPR from government to prevent further declines in his party's popular ratings and call elections at a time when the Law and Justice Party (PiS) could still stand (a very slim) chance of winning the polls. In the event of early elections, we believe that a coalition government between the main opposition Civic Platform (PO) and the incumbent PiS is the most likely scenario. Given the weak polling data of some of the smaller parties, the PO and the PiS could even achieve a simple majority, making it possible to form an administration with one coalition partner.

Despite further rises in the country's benchmark interest rate (currently standing at 4.50%), consumer spending and private investment are expected to remain one of the main drivers of economic expansion over the coming quarters. Large construction and infrastructure projects ahead of the 2012 UEFA football cup are likely to keep investment at elevated levels in the years ahead.

Nevertheless, the looming prospects of an international credit crisis constitute a considerable risk to investor confidence going forward, both on a domestic and international level. Furthermore, a sharp downturn in external demand could put a considerable drag on export and economic growth alike.

Against the background of fast-paced credit growth, the banking sector appears to be sufficiently insulated from a crisis; especially given that the percentage of non-performing loans to total monetary financial institution loans has halved over the past four years, falling from a record high of 5.4% at the beginning of 2003 to 2.5% at the end of June. In fact, the percentage of non-performing to the entire non-financial sector reached its lowest in ten years, standing at 5.7% in June (down from a staggering 19.4% in June 2003), highlighting the increasing robustness of the Polish banking sector.

Content

Executive Summary
New Government To Bode Well For Reform
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- Light At The End Of The Tunnel?
- Snap elections later this year are likely to see a more reform-minded coalition government come into power,
- potentially composed of the current main opposition party, Civic Platform (PO), and the incumbent Law and
- Justice Party (PiS)
- Table: Poland Cabinet & Other Key Posts
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Growth To Peak In 2007
- Thanks to surging consumer demand, strong private investment and robust export growth, we expect real GDP
- growth will come in at 66% in 2007
- Table: Poland Economic Activity
- Fiscal Policy
- Lack Of Fiscal Reform Poses Risk To Debt Outlook
- Ratings agency Fitch announced that the government's lack of commitment to control the country's worsening
- fiscal deficit (increasing to an estimated 38% of GDP in 2007 from 24% in 2006) may represent a major obstacle
- to further rating upgrades in the medium term
- Table: Poland - Fiscal Policy
- Monetary And Exchange Rate Policy15
- One More Rate Hike Sufficient?
- Following the National Bank of Poland (NBP)'s pause in July, we forecast another 25bps interest rate hike during
- the second half of 2007 Nevertheless, a weaker currency and high international oil prices are likely to represent
- upside risks to our current interest rate forecast
- Table: Poland - Monetary Policy
- Banking and Finance
- Limited Risks To Polish Banking Sector
- Despite the recent surges in Polish domestic credit growth, we believe that households still face only limited
- refinancing risks
- Equity Outlook
- Banking Sector To Spur Stock Market
- Despite the recent losses in the Polish WIG20 equity index, we believe that the bourse has further upside
- potential in H207, thanks to a flourishing banking sector
- Regional Outlook
- CE and SEE Growth- As Good As It Gets Revisited
- Robust Q1 economic growth throughout the emerging Europe region reinforces our 'As Good As It Gets' view for
- 2007, underpinning BMI 's expecations for further strong regional economic performance this year
Chapter 3: Special Report
- Global Inflation
- Becoming A Concern Once More
Chapter 4: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Legal Issues
- Labour Force
- Table: Demographic Indicators 2005
- Foreign Investment Policy
- Table: Poland, Annual FDI Inflows
- Table; Emerging Europe Annual FDI Inflows
- Foreign Trade Regime
- Table: Top Export Destinations
- Tax Regime
Chapter 5: Key Sectors
- Telecoms
- Table: Selected Operators Financial Indicators
- Mobile
- Poland is currently one of Europe's most attractive construction markets With more than 31,000 active players,
- the polish construction industry is a significant contributor to the country's income
- Infrastructure
- Table: Poland's Infrastructure Industry Forecast