Poland argues euro best defense against crisis

Strong public finances and quick adoption of the euro are the best remedy for Poland's deepening economic turmoil, the country's finance minister said Thursday, as new figures showed a sharp drop in industrial production.

"Secure public finances and a quick adoption of the euro are the best way out of the crisis for Poland," Jacek Rostowski told parliament.

Euro membership is still years away, but the subject gained new urgency after Eastern European currencies and stock markets were hit in recent days by continuing bad economic news.

Poland and its zloty have been suffering after initially avoiding the worst of the initial fallout triggered by the collapse of banks and financial institutions in the United States and western Europe.

The zloty stood at 4.73 to the euro on Thursday — better than Wednesday's level of 4.89. That good news, however, was tempered by the Central Statistical Office's announcement that Poland's industrial production dropped 14.9 percent in January compared with the same month last year.
It was the third consecutive month of declining industrial production — a key indicator for the overall health of the economy.

Prime Minister Donald Tusk said earlier this month that Poland would stick to its plans to adopt the euro in 2012, but acknowledged that the financial crisis could threaten that goal.

The government has refused to increase the budget deficit even after the crisis pushed down 2009 growth estimates from around 3.7 percent to 1.7 percent. Instead, it opted earlier this month to find 19.7 billion zlotys ($5.5 billion) in savings in the 2009 budget.

"We are ready to find more savings, and if that doesn't suffice we don't want to raise taxes or increase the budget deficit, but we have to be prepared for a situation in which we have to choose the lesser evil," Rostowski said.

Danske Bank chief analyst Lars Christensen said Poland's public finances "are relatively strong, both in a central European and even a European perspective," and that the government is "more or less on track and moving in the right direction."

Before adopting the euro, prospective members are required to spend at least two years in an exchange rate mechanism, or ERM-II, that demands low and controlled inflation, healthy public finances and a budget deficit below 3 percent. Meeting Poland's 2012 euro target would require Warsaw to start that process this year.

Analyst Christensen said the government is veering onto a "dangerous path" with its continued talk "about ERM-2 and euro adoption when it is clear that there is no commitment on the other side of the table from the ECB (European Central Bank) or the EU Commission."

Christensen said such talk raises too many questions — such as where to peg the zloty — and "creates uncertainty rather than certainty."

Rostowski, who has been criticized by the opposition for his handling of the economy in the face of the turmoil, said adopting the euro would shield Poland's currency from pressures that have seen the zloty drop as much as 15 percent in 2009 to 4.9 against the euro and pushed up foreign debt payments.

"Our ambition to quickly join the euro stems from the fact that it is the best means to fight the crisis in Poland," Rostowski said.

The 16 countries using the euro — including Poland's neighbor Slovakia, which joined Jan. 1 — have seen growth plummet and strain on their public finances, but have not had to deal with added pain of sharp currency devaluations. Some non-euro countries, such as Iceland, Hungary, and Ukraine, have needed IMF bailouts after their currencies plunged.
Source: iht.com

Commerzbank's BRE sees much higher provisions in 2009

Poland's No. 3 lender BRE Bank BREP.WA expects its provisions to grow significantly this year as worsening economic conditions weigh on its corporate clients, management board member Wieslaw Thor said on Tuesday.

Last year, provisions at Commerzbank's (CBKG.DE) Polish unit stood at 269 million zlotys ($77.4 million).
Source: By Piotr Skolimowski, Chris Borowski
reuters.com

UPDATE 2-Polish rates may be cut to below 3 pct-c.banker

Poland's central bank should cut interest rates further, possibly to below 3 percent, as economic conditions deteriorate and inflation keeps falling, key Monetary Policy Council member Jan Czekaj said on Monday.

In response to the sharply slowing economy, easing inflation and the global crisis, the central bank began to lower borrowing costs in November 2008 and has reduced its benchmark rate three times by a total of 175 basis points to at 4.25 percent.
he finance ministry said on Monday it expected price growth to have eased to 3.2 percent in January, from 3.3 percent in December -- moving closer towards the bank's 2.5 percent target.

'I believe that there should be more rate cuts fairly quickly,' Czekaj told daily Rzeczpospolita in an interview released on Monday.

'Maybe the proper level for the (key) rate would be 3.5 or maybe 3 percent ... If the economy will be growing slowly it cannot be excluded that we will need to lower the rate to below 3 percent.' Czekaj is a key swing-voter on the 10-strong MPC.

He also said that he saw no reason for delaying or dropping the government's ambitious plans for euro adoption in 2012 because of the sharp global and domestic economic slowdown.

'There is no such need,' he said. '...ERM 2 entry could calm the situation on the currency market.'

Many analysts say that pushing ahead with euro adoption in 2012 could be too risky because high market volatility and the global crisis would make it harder for the zloty currency pass one of the entry tests, spending two years proving its stability in the pre-euro ERM 2 currency grid.
Analysts expect more interest rate cuts but remain split on where the key rate will end this year and how low it will fall in this easing cycle. The median forecast in the latest Reuters poll places the key rate at 3.25 percent in December.

'There are objective conditions for easing monetary policy,' Czekaj said.

Although the Polish Purchasing Managers' Index (PMI) rose to 40.3 points in January, the first rise in the index since February 2008, it is still well below the 50 growth/contraction divide, showing the manufacturing sector remains weak.

'Overall, the first batch of 2009 PMI data point to further aggressive rate cuts by the central bank in the first quarter,' said Trevor Balchin, economist at Markit Economics, which compiles the PMI data. 'Inflation concerns have eased despite the falling zloty, as the PMI showed further falls in price pressures in manufacturing.'

Poland's gross domestic product (GDP) growth in 2008 eased to 4.8 percent, from 6.7 percent in 2007, preliminary statistics office estimates showed last week, and some analysts said the sharp slowdown in investments last year indicated more trouble ahead for the Polish economy.
Source:By Karolina Sowikowska,Ruth Pitchford,
forbes.com

Economic crisis finally hits Poland

A string of dreary statistics this week shows that the once-booming economy has started to sputter: manufacturing fell significantly at the end of last year, unemployment shot up and officials are finally admitting that Poland is hurting.

Poland "will not be an island resistant to trends outside its borders," Prime Minister Donald acknowledged Tuesday as he announced a plan to seek budget savings this year to cover a likely shortfall in state revenues.

For months, Poland's leaders and economists insisted the country could avoid the global turmoil thanks to its healthy banking sector and low mortgage and consumer debt levels.

Shoppers kept spending at the gleaming new malls that have mushroomed in recent years across Poland — by far the largest of 10 formerly communist countries that have joined the European Union in recent years.
But the days of denial have now passed.

"Everybody is worrying," said Maja Goettig, chief economist for BPH Bank in Warsaw. "The outlook is worsening each month, and the question is how big this slowdown will be. We've just entered it — and nobody knows when it will end."

The economy that grew at a brisk 6.7 percent in 2007 — swelling the ranks of a middle class with money to spend on fine wines, fancy cars and large homes — slowed to a still-healthy 4.8 percent in 2008, according to figures released by the government's Central Statistical Office Thursday.

Data released this week have shown that Poland felt a chill toward the end of the year as the global crisis hit the country's western European neighbors and the United States. Unemployment rose in December for the second straight month, reaching 9.5 percent — due in part to a slowdown in the manufacturing sector as foreign orders fall.

Industrial production in November fell 8.9 percent over the previous year; data released Tuesday showed another 4.4 percent year-on-year fall in December.

The same day, the central bank cut interest rates by a hefty three-quarters of a percentage point for the second consecutive month. It cited a "stronger than previously expected economic slowdown" in cutting its benchmark rate to 4.25 percent
As worries deepen, Poland's zloty has depreciated significantly in recent months against major currencies like the euro and the U.S. dollar.

The question now is how bad things will get. Many experts still believe Poland can weather the storm better than other European countries and manage modest growth in 2009, although it exports heavily to countries already in recession.

Goettig says her bank predicts 2 percent growth for now, but expects to revise that downward to zero growth. Tusk, the prime minister, said the government's "pessimistic" scenario is for 1.7 percent growth.

Another source of instability comes from the fact that many of the Poles who bought homes in recent years took out mortgages in Swiss francs. Now that the zloty has declined, some are finding it harder to repay their loans.

Despite the souring mood, there are some reasons for optimism.

Polish banks are tightly regulated and were never burdened by the toxic assets that have brought down financial institutions elsewhere. Economy Minister Waldemar Pawlak says Polish banks, mostly owned by large Western European banks, are often in a much better situation than their parent companies.

And bucking the larger trend, retail sales in December grew 6.6 percent over the same month in 2007, better than experts expected.

However, the state statistics office said this week that consumer confidence is now falling.

Agata Lagan, who runs a string of high-end clothing shops throughout Poland, attests to that. She said December sales fell by 30 percent in her Lilla Moda shops in Warsaw year on year.

Another factor weighing on profits is that the battered zloty has made it more expensive to import the goods.

"Usually when we have a new collection, the shops are full of customers ready to shop on the first and second days," she said. But when a new collection arrived two weeks ago, the crowd was less than half the usual size.

"Everyone is waiting for discounts," she said.
Source:iht.com

Poland – 82nd most free economy

Poland is the 82nd freest economy in the world, according to the Heritage Foundation’s 2009 Economic Freedom Index.


The ranking, out of 183 countries, is the same for the post-communist central European nation as it was in 2008. One place above is Greece, one place below is Kazakhstan.

According to the Heritage Foundation, Poland’s ranking reflects, “modest declines in five of the 10 economic freedoms that offset a considerable gain in freedom from corruption. Poland is ranked 35th out of 43 countries in the Europe region, and its overall score is above the world average.”


After a series of reforms implemented last year, :Poland scores above the world average in trade freedom, monetary freedom, investment freedom, financial freedom, property rights, and freedom from corruption.”


However, Poland ranks badly in the size of the state sector, with high public spending and still sluggish progress in the rate of privatization

Source:hpolskieradio.pl

Economic tensions with Poland linked to missile plans - Putin

Russia's president said on Thursday that tensions in economic relations with Poland were linked to U.S. plans to deploy missile defense elements in the Central European country.

"My feeling is that anti-Russian sentiment has been fuelled intentionally to create a moral and political situation conducive to deploying the [missile defense] systems," Putin said at his final annual Kremlin news conference.

Washington wants to place 10 missile interceptors in Poland and a radar in the neighboring Czech Republic, purportedly to counter a missile threat from Iran and other "rogue" states. Russia has fiercely opposed the plans.

"If this happens, the level of security in Europe will be reduced," Putin said.

The problem with inferior meat supplies from Poland to Russia is a problem between Russia and Europe rather than between the two countries, Putin said.

According to Putin, agriculture in Eastern Europe is subsidized from European financial sources and this produce is dumped onto the Russian market, thus suppressing the development of domestic agriculture.

Relations between Russia and Poland deteriorated after Moscow imposed an embargo on Polish meat in November 2005 claiming that meat from third countries was being imported under the cover of Polish produce. Russia resumed meat imports in December 2007.

Russia does not intend to limit energy deliveries to Europe, including Poland, but is set to diversify supply routes, the Russian president said.

"We have no plans to limit anything in the future, but we are proceeding from the need to diversify energy supplies to new consumers. What is wrong with that? What's anti-Polish about that?" Putin said.

Source: en.rian.ru