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Polish report Polish report
by Euro Reporter
2011-06-30 08:02:59
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Account shortfall widens less than forecast

Poland’s first-quarter current- account deficit was less than the median estimate of economist as the central bank’s change in methodology added less to the shortfall than estimated. The gap was 3.36 billion Euros ($4.82 billion) in the first quarter, compared with a revised 2.17 billion Euros a year earlier, the Warsaw-based Narodowy Bank Polski said today. The median estimate of 17 economists surveyed by Bloomberg was 4.15 billion Euros. The bank, which changed its accounting rules to reduce the volume of unclassified transactions, also revised current-account figures since 2004.

Poland’s current account, the broadest measure of money flowing in and out of the country, attracted investor attention after the deficit in unclassified items, or errors and omissions, exceeded the overall shortfall for a second year in 2010. The changed methodology cut errors and omissions by shifting used-car imports to the trade balance and classifying current transfers more precisely, the bank said.

“The revised data didn’t confirm the concerns of some investors,” Grzegorz Maliszewski, chief economist at Bank Millennium SA (MIL) in Warsaw, said by phone. “The deficit structure doesn’t pose a big risk to Poland’s financial stability because it’s financed by long-term capital inflows, such as EU funds.”


Poland among the cheapest EU countries

Poland is one of the cheapest countries in the European Union, shows the latest Eurostat report on consumer price levels. In 2010, prices levels for consumer goods and services in Poland stood at a level of approximately 63 percent of average prices in the EU.

Only Bulgaria and Romania were found to be less expensive than Poland, with a 51 percent and 59 percent ratio respectively. Among other countries displaying price levels between 30 and 40 percent below the EU average were the Czech Republic (72 percent), Slovakia (71%), Hungary (65 percent).

Meanwhile the most expensive country in the EU was found to be Denmark. Average prices there come out to about 143 percent of the EU average. It was followed by fellow Scandinavian country Finland (123 percent), Luxembourg and Sweden (both 120 percent).


Government cuts deficit as outlook stays bright

When the economic crisis hit, Marek Perendyk, chief executive of Centrum Klima, ventilation and air-conditioning systems company, turned to the stock market to finance a new factory. Now, with exports soaring, he is looking for 45m zlotys ($16m) to build another factory, but instead of issuing stock he is going to the bank, a sign both of the strength of Poland’s economic recovery and of the banking sector’s rebound. “I have the impression that if a proposal makes sense, they are waiting to finance projects like ours,” Mr Perendyk says.

His feeling is confirmed by Mateusz Morawiecki, chief executive of Bank Zachodni WBK, Poland’s fourth largest bank and a unit of Spain’s Santander. He says: “We are seeing a strong rebound in borrowing across all sectors.” With many companies such as Mr Perendyk’s starting to invest again in increasing production, forecasts the economy will grow 4 per cent this year look secure. Solid growth is only part of a generally positive economic picture, which is likely to avoid the budget problems that loomed large several months ago. Although it was the only EU country not to fall into recession in 2009, managing expansion of 1.8 per cent, its fiscal position worsened sharply, in part because of earlier tax cuts and because the government lacked the political courage to undertake deeper reforms and failed to control spending fast enough. The budget deficit last year soared to 7.9 per cent of gross domestic product and the public debt is very close to a legal threshold of 55 per cent of gross domestic product which, if crossed, mandates spending cuts.

However, several factors are pushing the country in the right direction. A rule limiting discretionary spending increases (about a quarter of government spending) to 1 per cent more than the rate of inflation is having some effect, as is the government’s controversial decision this year to shift resources from the private arm of the pension system back to the state-run scheme, so reducing the subsidies needed. Tax receipts are climbing, thanks in part to companies having written off their losses from the crisis last year and to rising inflation. The finance ministry now predicts the deficit will be 5.6 per cent of GDP this year and fall to 2.9 per cent in 2012, enough to end the current excessive deficit procedure imposed against Poland by the EU.

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