Poland to unveil budget cutbacks as growth slumps

Poland plans to unveil up to 20 billion zlotys in budget savings on Tuesday, as unemployment soars and investment falls, cutting into the previously plentiful income of the European Union's biggest ex-communist state.
Economists have slashed forecasts for growth this year as the global financial crisis hit home, raising concerns that a 2009 budget plan prepared almost half a year ago would fall apart due to plummeting revenues.
The head of the state's investment agency said on Tuesday that foreign direct investments coming into Poland were likely to drop to 7-10 billion euros in 2009 from about 12 billion in 2008.
Labour Minister Jolanta Fedak added that unemployment could jump to as much as 12 percent this year, having fallen into single figures for the first time since Poland's early 1990s transition from communism.
Slawomir Nowak, a top aide to the prime minister, said the government would announce a savings plan later on Tuesday and that it had found a planned 17 billion zlotys ($4.89 billion) in savings, despite doubts expressed by analysts.
But a government source confirmed for Reuters a media report that the government could increase the value of savings to 20 billion as it seeks to fill the prospective hole in revenues.
"On one hand it is rationalisation (of spending)," Nowak told Polish broadcaster TVN's morning show. "But the majority is freezing of investments (until later)."
Where Western European governments have upped spending to stimulate their economies, Romania and Hungary have led spending cuts by eastern European governments concerned about their ability to bring in external finance.
Poland's zloty hit a four-and-half-year low on Tuesday and the large cap WIG 20 bourse index slid close to levels last seen in 2003 as investors continued to dump riskier assets in emerging Europe in favour of more developed western markets.
Austrian and Italian officials have also warned in recent weeks that a squeeze on capital for their banks in the region could halt investment in Central Europe's once-booming ex-communist economies.
Poland, with a population of 38 million, saw its economy grow 4.8 percent in 2008, down from 6.7 percent in 2007. It is expected to slow even more sharply this year with some even expecting growth close to zero.
In response to the spreading economic gloom, growing fears over job security and weakening consumption, the central bank has cut interest rates three times since November, by a total of 175 basis points, bringing the key rate down to 4.25 percent.
Underlining the pace of the country's economic slowdown, two of the three most persistent hawks on the central bank's 10-strong Monetary Policy Council (MPC) called on Tuesday for another rate cut this month.
The deteriorating outlook in Poland has prompted even the most hawkish members of the central bank's MPC to back a further rate cut this month.
"We're still in an easing cycle... Every sharp decline in industrial output breaks the balance in the economy. We can't allow for that now," Marian Noga, who had consistently backed rate hikes during the bank's previous monetary tightening cycle, told the Gazeta Prawna daily in an interview.
Source:Adrian Krajewski and Kuba Jaworowski, /business/feedarticle/8340065

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