Poland May output low but economy still healthy

(Adds analysts, detail)
By Piotr Bujnicki and Urszula Kaczorowska
WARSAW, June 18 (Reuters) - Polish industrial output came in well below market expectations in May but most analysts said this was due to a statistical effect and central Europe's largest economy remained healthy for now.
The zloty and bonds hardly reacted to the statistical office's data showing output rose 2.3 percent year-on-year against 7.4 percent expected by analysts in a Reuters poll and 15.1 percent in April.
Analysts said the Monetary Policy Council (MPC) was still likely to raise interest rates at next week's meeting as a rise in producer prices by half a percentage point to 2.8 pointed to strong inflationary pressures in the economy.
"The output data is strongly affected by two long weekends in May ...So we don't think this will affect the way the MPC sees the economy," said Ryszard Petru, chief economist at BPH Bank in Warsaw.
The expected June rate hike would bring the main rate to 6 percent from the current 5.75 percent.
May consumer price inflation stood at 4.4 percent -- the highest level since December 2004 and almost two percentage points above the central bank's target of 2.5 percent.
The MPC has already raised rates seven times bringing the main rate to 5.75 percent, responding to a booming economy which grew by 6.1 percent in the first quarter. In 2008 the economy is expected to grow by 5.5 percent compared to 6.6 percent in 2007.
"We do not think today's data constitutes a collapse in economic activity in Poland, but rather expect a gradual slowdown in GDP growth in the coming quarters," Piotr Kalisz economist at Citibank Handlowy in Warsaw wrote in a note.
THE SCEPTICS
Some economists said the output data could be marking the beginning of a sharper-than-expected slowdown but more data was needed to confirm the trend.
"The economic slowdown is taking place and I think it will continue in the time to come," said Michal Dybula, economist at BNP Paribas in Warsaw. who expects the economy to slow to 3.9 percent in 2009.
Dybula said the slowdown would be revealed in export and output data in the coming months. "We will face a slowdown resulting from a cyclical downturn connected with the slowdown in the European Union as a whole," he added.
But so far exports are strong. In April they rose by more than 30 percent in year-on-year terms despite the strong zloty which has also strengthened by about 30 percent against the euro since Poland entered the European Union in 2004.
Economists who remain sceptical of Poland's growth prospects say that while the economy may be slowing some indicators, like wages, consumer and producer inflation, can still show a considerable rate of growth.
Wages, which are one of the main concerns of the MPC, grew by 10.5 percent in May raising fears of second round effects.
Source:(Writing by Kuba Jaworowski; Editing by Malcolm Whittaker)
guardian.co.uk