16 March 2009

EZA 887 Report: ECB Observer

16 Mar 09

Poland update – better placed than most of it’s neighbours, but ERM target difficult

Key indicators in the Polish economy, such as retail sales and manufacturing output, turned down sharply during 4Q09.
Still, GDP growth had been positive until year end and is expected to stay in positive territory – around 2% – this year. In this respect Poland is likely to outperform its Eastern European neighbours in the current global economic crisis.
The Achilles’ heel of the economy is continuing price pressure, a legacy of high wage and cost growth in the boom period until mid 2008.
The weakening of the economy and lagging inflation put the central bank in a dilemma, which is also reflected in a weaker zloty, undermining Poland’s prospects of ERM entry and EMU in 2012.
 

Asset conclusions: the Polish economy is likely to outperform Eastern Europe in terms of growth this year. A key risk would be a protracted downturn in western European markets, which would reflect badly on deficit and inflation, hence delay EMU entry.
 

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