2012-11-14 21:04:54 - Poland Business Forecast Report Q3 2012 - a new country guide report on companiesandmarkets.com
We forecast real GDP growth of 2.5% and 3.9% in 2012 and 2013 respectively as robust domestic demand provides a measure of protection against a slowdown in the eurozone. However, we remain below consensus, which is for 3.0% growth in 2012, because we do not think that investment and government spending will be as supportive of growth as they were in 2011. We expect Poland to narrow its budget deficit from 5.1% of GDP in 2011 to 3.4% of GDP in 2012, missing its target of 2.9% of GDP.
However, we do not expect public debt to breach the 55% of GDP debt ceiling, with it on course to fall gradually from 2013 onwards. Tension between Poland and Russia is likely
to persist in 2012 as the acceleration in Iran´s nuclear programme has renewed discussion over the US´s plans for a ballistic missile defence system in the region. Several of the interceptors are to be located in Poland, and while the Russian government opposes the programme, Poland has pushed for it.
Major Forecast Changes
We now forecast that the National Bank of Poland will hold rates at 4.75% in 2012, having surprised the market with 25 basis point hike on May 9. We believe further hikes are unlikely to occur given our below consensus outlook for GDP growth, and the bank´s hawkish rhetoric will prevent it from cutting rates as inflation drifts back into the target band. As the macroeconomic headwinds originating from the eurozone have started affecting non-euro countries, we have amended our 2012 current account forecast for Poland. We now expect the deficit to narrow to 4.0% of GDP in 2012, from an estimated 4.3% of GDP in 2011. Underlying this latest revision is our view that goods and services import growth will be contained as Poland enters a period of deep fiscal tightening.
Risks To Outlook
Although not our core scenario, we highlight the risk of Greece leaving the eurozone, potentially leading to a disorderly breakup of the whole common currency bloc. This would likely push Poland into recession. A zloty sell-off in response to a downturn in risk appetite could prompt the central bank to hike rates in order to contain imported inflation. This risk would be heightened if domestic demand holds up better than we currently expect.
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