Matthew Day in Warsaw -

Poland's politicians and economists have issued rallying cries in an attempt to bolster confidence in the country's economy after Warsaw's stock market became another victim of the tidal wave that swept through the world's financial markets and left bourses across Central and Eastern Europe battered and bruised.

Jacek Rostowski, Poland's finance minister, said he believed the economy would remain resilient to the turbulence on the financial markets that saw the Warsaw exchange's WIG20 Index fall 0.5% on January 21, its biggest drop in eight years. Following the Federal Reserve's emergency rate cut on Tuesday, January 22, the index rallied 3.0% but ended the day up only 1.8%, and has remained volatile since.

"Recent sharp falls on stock exchanges are a result of expectations of a significant slowdown in the US economy," says Rostowski. "This may cause some slowdown in the European Union's economies, but we do not expect it to affect the pace of the economic expansion in Poland."

His confidence was echoed by the head of the Polish central bank, Slawomir Skrzypek, who said that talk of a recession in the US and elsewhere should not deflect from the fact that the "fundamentals of the Polish economy remain very strong". He added he hoped the "emotions that have accompanied recent events would ease" in an attempt to calm widespread media speculation of impending economic doom.

While this type of fighting talk is expected from public figures, economists have also rushed to allay fears the Polish economy is in for a rocky period.

Marcin Mroz, senior economist at Fortis Bank in Warsaw, says that while the Polish markets might suffer from problems in the global market, the Polish economy should remain "immune" to a global slowdown. He points to the substantial amount of EU funding earmarked for Poland and high levels of foreign direct investment, which he believes should hit €10bn in 2008, as two key factors that should underpin the economy. "Along with these, there are also factors supporting the household sector," says Mroz. "The previous government cut social security transfers, and there is the money that emigrants are sending back home – which has become quite important. Taking all these factors into account, I would say that the Polish economy, which is currently being driven by domestic demand, should show good results despite any global slowdown."

Silver lining

Problems in the global economy might also come with a silver lining for Poland. Economists say that while a credit crunch could have adverse, if mild, effects on some investment flows into Poland, as money becomes tighter this could be offset by increased global demand for low-cost production locations and cheaper suppliers, both of which Poland can provide.

Economists have also dismissed fears that Poland could suffer from a US-style crunch on the sub-prime housing market. Although the Polish mortgage market has experienced rapid growth over the past four years, and with lenders now prepared to grant 100% financing as part of a concerted effort to boost the accessibility of loans, the market remains different from that in the US. Polish lenders still apply strict controls over lending and have refrained from granting the no-questions-asked type of loans that became common in the US and helped weaken the housing market. Once made, the loans also stay within the bank and aren't, as they are in the US, securitised and sold on.

On top of this, a Polish economy that the government expects to grow by more 6% in 2008 and surging wage increases have underpinned the ability of people to pay back their loans.

Even so, the instability in Warsaw's stock market has already had an immediate impact on local companies' plans for IPOs and has hurt the funds that invest in the market.

At the end of 2007, there were some 20 companies lining up to list on the WSE in the first quarter and a further 20 aiming for the second quarter. Already Hoopla, ZM Herman, Hardex and Pro Bud have delayed their IPOs, and Poland's largest pay-TV operator Cyfrowy Polsat became the latest by announcing on January 22 it would delay its IPO on the WSE until the market stabilises. In addition, the government, which is planning to float the four state-owned energy conglomerates it has created in order to get money for investment, is reported to be considering postponing the first of these planned for the next quarter.

The fund industry is also saying that January will be the worst month for Polish investment funds in their history. Krzysztof Stupnicki, head of AIG TFI, estimates that clients could withdraw as much as €2.75bn in the month.

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