Fitch affirms Poland at 'A-'; Outlook Stable, sees GDP growth at 3.4% in 2014

By bne IntelliNews August 10, 2014

Fitch Ratings has affirmed Poland's Long-term foreign currency Issuer Default Rating (IDR) at 'A-' and local currency IDR at 'A'. The Outlooks are Stable. The issue ratings on Poland's senior unsecured foreign and local currency bonds have also been affirmed at 'A-' and 'A', respectively. The Country Ceiling has been affirmed at 'AA-' and the Short-term foreign currency IDR at 'F2'.

The agency explained that the affirmation and Stable Outlook reflect, among others, a relatively robust and increasingly domestic demand driven economic recovery that is underway.

Fitch forecasts GDP growth of 3.4% in 2014, despite a soft patch in Q2. The agency projects a mild acceleration in growth in 2015-2016, as the economic performance of Poland's key EU trading partners improves and fiscal drag gradually recedes. Fitch's forecast implies a closing of the gap with 'A' peers on this metric. Nevertheless, downside risks prevail and mainly relate to uncertainties surrounding the level and extent of US and EU sanctions against Russia and their broader macroeconomic effects.

According to the rating agency, stronger economic growth, increased flows to the budget from the downsizing of the open pension funds (OFEs), and some further structural consolidation should allow the general government deficit (GGD) to fall to 3.2-3.3% of GDP in 2014 from 4.3% in 2013. Including the transfer of government bonds from OFEs, general government accounts (ESA95, to be replaced by ESA2010 later in 2014) will record an estimated surplus of 4.7% of GDP. Fitch projects GGDs of 2.8% and 2.6% of GDP in 2015 and 2016, respectively, which would allow Poland to exit the EU's Excessive Deficit Procedure, as well as bring it closer to the 'A' median (2.2% in 2013).

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