A glummer but still glimmering Poland

By bne IntelliNews September 19, 2012

Jan Cienski in Warsaw -

The annual economic summit in the Polish mountain resort town of Krynica held every September is usually an occasion for a lot of breast-beating as CEOs and economists boast about how well their companies and the country is doing. But this year the atmosphere was a lot glummer - one of a host of signs the Polish economy is slowing unexpectedly sharply as the sputtering Eurozone slows demand for Polish exports, while Polish consumers become more reluctant to spend out of fear of growing unemployment.

"I'm going to have to start thinking of layoffs because the orders just aren't coming in," complained one executive to another over drinks at one of the boozy receptions that are a feature of the economic summit.

While Poland has tended to outperform expectations in recent years - it was the only EU country to avoid recession in 2009 and has been one of the bloc's fastest growing economies since then - the latest data releases confirm that the situation is getting worse. "We are working on the assumption that the next year will be more difficult," says Cezary Stypulkowski, CEO of Poland's Bre Bank, a unit of Germany's Commerzbank.

Second-quarter GDP expanded at an annual rates of 2.4%, a sharp slowdown from the 3.5% in the first quarter and much worse than most economists were expecting. "Instead of a steady weakening of economic growth, we're seeing a no-holds barred fall," says Malgorzata Starczewska-Krzysztoszek, chief economist for Lewiatan, the Polish employers confederation, noting that the lacklustre growth came at a time when Poland was racing to finish large infrastructure projects ahead of June's European football championships. "That says a lot about the strength of the slowdown."

Downgrading expectations

The finance ministry has also been forced to recalibrate its assumptions for growth. New estimates now predict the Polish economy will grow by only 2.2% next year, down from earlier estimates of 2.9%. As such, Finance Minister Jacek Rostowski has also been forced to abandon his hopes of driving the budget deficit below 3.0% of GDP this year (compared with 5.6% in 2011) admitting that a 3.5% deficit is likelier; the government is again worried about public debt starting to rise beyond the legal threshold of 55% of GDP.

At a news conference held to announce the bad news, Rostowski noted that the situation was similar to 2008-09, when Poland was buffeted by the storm coming from the implosion of the US economy, while now the challenge was coming from the crisis-ridden Eurozone.

The prospect of a sharper-than-expected slowdown has sent Polish policymakers rushing to stimulate growth, partly backing away from their recent budget orthodoxy. The central bank, the only one in the EU to hike rates earlier this year on the back of what then seemed to be strong growth numbers and persistently high inflation, has markedly softened its tone. "Should the incoming data confirm further weakening of economic conditions, and should the risk of increase in inflationary pressure be limited, the Council will consider adjustment of monetary policy," said a statement from the central bank's interest rate setting Monetary Policy Council. Most economists expect the bank to start dropping rates from the current benchmark of 4.75% in the near future.

The Polish Financial Supervision Authority also said it is prepared to revamp its regulations limiting easy access to credit for borrowers, another way of getting people to start spending again. "I'm happy that Polish regulators have taken another look and may loosen their policy," says Krzysztof Kalicki, head of Deutsche Bank's Polish operations.

One of the biggest surprises is that markets barely reacted to the new and looser policy - a sign that the main preoccupation in Europe has swiftly shifted from fiscal austerity to ensuring that growth does not fall off a cliff and trap countries in a downward spiral of falling revenues, higher taxes and slower growth, something already seen in Greece and Spain and, to some extent, in the Czech Republic.

Although the business atmosphere is fairly grim, Poland's plight still looks a lot better than almost everywhere else in the EU. Even with the finance ministry's recalculated estimates, Poland will be one the bloc's fastest growing economies both this year and in 2014. Just after the downbeat budget announcement in early September, Poland managed to place a $2bn dollar-denominated bond issue that was four times oversubscribed at a record low yield of 3.175%.

Peter Attard Montalto, an economist with Nomura, the investment bank, finds that Poland is actually running what he calls a "Goldilocks economy", one that is neither too hot nor too cold, sustaining moderate growth and low inflation that allows a market-friendly monetary policy. "In a world of dying inflation targeting and much slower growth, Poland is as close as you can get to a stable goldilocks economy, in our view - downside risks are certainly present but contained and it is very difficult still to see how they could lead to a recession," he says.

In the end, the Krynica forum businessmen may have been a bit down, but they were complaining at a flashy party funded by some of the country's largest companies, with alcohol flowing liberally and some of the country's top music acts hired to perform - not bad for a downturn.

Related Articles

UK demands for EU reform provoke fury in Visegrad

bne IntelliNews - The Visegrad states raised a chorus of objection on November 10 as the UK prime minister demanded his country's welfare system be allowed to discriminate between EU citizens. The ... more

Poland's Law and Justice nominates hardline cabinet

Wojciech Kość in Warsaw -   Poland’s Law and Justice (PiS) party, which won an outright majority in the parliamentary elections on October 25, has announced a hardline ... more

Kaczynski expected to appoint hardline cabinet

Wojciech Kość in Warsaw -   The Law and Justice (PiS) party, which won an outright ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.