2013-03-14 10:39:17 - New Country Reports research report from Business Monitor International is now available from Fast Market Research
While we are forecasting relatively robust economic activity over the medium term, high unemployment and stagnant real wages will continue to weigh on real GDP growth.
Poland's external position remains relatively strong. We forecast the current account deficit to narrow from 4.3% of GDP in 2011 to 3.0% in 2013 as the economic slowdown reduces import demand. However, a large stock of foreign-owned government paper and ongoing private sector deleveraging represent the two major risks to our sanguine outlook.
We continue to expect the Civic Platform (PO)-led government to serve out its term. The government won a recent parliamentary vote of confidence, suggesting its parliamentary majority is safe for the time being. We also believe that the opposition will struggle to
broaden its appeal despite the rising government unpopularity, limiting its ability to challenge the ruling coalition.
Major Forecast Changes
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We forecast Polish fiscal deficits of 3.0% and 2.2% of GDP in 2013 and 2014 respectively, in line with recent official revisions. Although we expect the government to loosen the fiscal reins more than it currently envisages in 2013, our above-consensus outlook for the economy should offset the effect on the budget deficit.
We have revised down our forecast for real GDP growth in 2013 from 2.6% to 1.9% and 3.7% to 3.0% in 2014 in light of Poland's increasingly depressed household segment.
Key Risks To Outlook
Although not our core scenario, we highlight the risk of Greece leaving the euro, 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 anticipate.
Partial Table of Contents:
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
BMI Political Risk Ratings
Tusk Secures Major Victory In EU Budget Deal
- Poland has managed to secure a larger share of structural and cohesion funds, despite historical cuts to the overall EU 2014-2020 budget. Assuming the new budget is passed by the European Parliament, the funds will continue to play a significant role in bolstering future economic growth in Poland, although the victory will do little to improve Prime Minister Donald Tusk's domestic standing.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
A Maturing Regional Power
- We consider Poland's long-term political risk profile to be on an upward trajectory, reflecting the country's maturing political institutions and greater confidence in the conduct of external affairs. Solid macroeconomic fundamentals underpin our expectation for improvement over the long run. Nevertheless, Poland still faces significant challenges to political stability in its external relations and at home.
Chapter 2: Economic Outlook
BMI Economic Risk Ratings
Balance Of payments
Current Account Deficit Will Continue To Narrow
- We expect Poland's current account deficit will continue to narrow to 3.0% of GDP in 2013, from an estimated 3.7% of GDP in 2012, as the domestic economic slowdown weighs on import demand. While there is potential for a decline in investor interest in Polish government debt over 2013, we do not expect to see a major reversal in non-resident holdings of Polish debt over the course of the year. As a result, we expect Poland's current account deficit will remain comfortably covered by financial account flows. 16
TABLE: CURRENT ACCOUNT
Budget Plans On Target
- We maintain our broadly positive outlook towards Poland's budget deficit, which we expect to arrive at 3.0% of GDP in 2013. The government's conservative growth forecasts have reduced the risk of undershooting their fiscal targets, and the treasury's proactive stance has allowed it to partially front-load funding for this year's budget deficit, locking in low borrowing costs and reducing rollover risk.
TABLE: FISCAL POLICY
Exchange Rate Policy
PLN: Weaker Outlook Ahead
- We removed our bullish PLN/EUR view on January 25 with implied total gains of just 0.35%, as market expectations turned increasingly dovish following comments from Monetary Policy Council member Andrzej Bratkowski, and the euro continues to rally strongly. furthermore, Poland's weak 2012 real GDP growth reading of 2.0% will keep the zloty relatively weak over the near-term.
TABLE: CURRENCY FORECASTS
Weaker Economy Paves Path For Further Cuts
Full Table of Contents is available at:
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