beyondbrics

Poland seems to be bucking a regional trend of economic slowdown. The government’s statistical agency on Tuesday reported that gross domestic product shot ahead by an unadjusted annual 4.3 per cent in the second quarter of the year, higher than analysts had forecast.

The agency said that the bulk of the growth was due to strong internal demand – the same factor that rescued Poland from the recession that struck the rest of the continent in 2009.

This time the growth came from companies building up inventories, a sign of optimism about how the second half of the year would look. This optimism may be difficult to sustain, however, in light of more recent credit concerns in the US and the eurozone.

The last weeks have also seen the zloty plummet in value against the Swiss franc, reducing the buying power of about 700,000 families with mortgages in that currency, as well as steep falls on the Warsaw Stock Exchange also hitting the pocketbooks of wealthier Poles.

“With the perception now looking gloomier, we’ll probably see companies reducing their inventories, which will have an impact on the second half of the year,” said Piotr Kalisz, an economist with Citi Handlowy bank, adding that he now foresees growth slowing to 3.5 per cent in the third quarter and falling below 3 per cent in the final three months of the year.

Poland’s numbers are more robust than those of other CEE countries like the Czech Republic and Hungary, which have been harder hit by the slowdown in western Europe. This is in large part due to the fact that Poland is less dependent on exports than those small and open economies.

Polish exports accounting for about 40 per cent of GDP, about half that of its smaller neighbours.

In addition, Poland’s exports to Germany, its biggest single market, tend to be focussed more on consumer goods, and for now German consumptions is holding up, while the Czech Republic and Hungary have a higher proportion of parts destined for German cars and machinery being built for export, mainly driven by demand from emerging markets.

While Poland’s growth numbers would be the envy of most countries in the eurozone at the moment, any slowdown could cause big problems for the government, which is aiming to reduce the budget deficit to 3 per cent of GDP in 2012, down from 5.6 per cent this year.

Kalisz, who expects the deficit to come in above 4 per cent next year, says that the government has very little manoeuvring room as the deficit cannot be allowed to grow any higher, and any further weakening in the zloty will push up public debt. Part of Poland’s debt is denominated in foreign currencies. Poland is already very close to the self-imposed debt threshold of 55 per cent of GDP which, if breached, mandates painful spending cuts.

“Any slowdown will be felt very quickly by the budget,” says Kalisz.

For now, the latest GDP data should provide a dose of optimism for economic observers that the country is (slowly) growing away some of its debt.

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