NOBE Independent Center for Economic Studies

Quarterly forecasts of the economic development of Poland

The performance of the Polish economy in the first quarter 2003 was somehow disappointing. Although the growth rate of GDP was only slightly lower than expected, and the further acceleration of the growth did occur, there was still no clear sign of the turnaround in the investment activity. Growth rate of above 2% was possible mainly because of the surprisingly good export performance. Despite the difficult situation on West European markets, and particularly in Germany, Polish exports continued to increase at a two-digit speed. On the one hand, such a result shows better than expected adjustment abilities of Polish exporters. On the other, however, indicates the difficult situation on the domestic market. Together with the sluggish imports - another indicator of the low investment activity - the foreign trade contributed significantly to the GDP growth, pushing it up by more than one per cent point. The domestic demand slightly decelerated compared to the end of 2002, mainly due to some slowdown in the private consumption. The most important factor, however, is the continuously low level of investment. The investment demand was still falling, partly due to the relatively slow inflow of FDI, and partly due to the bad business sentiment of the domestic firm. Such a prolonged period of the poor investment climate can not be explained just by the macroeconomic policy implemented in Poland. It was rather a mix of the policy errors, generally perceived slowdown in structural reforms, lack of the confidence in the economic policy, political uncertainty, and the deteriorating external environment that contributed to the poor outcome.

In our view, the investment activity has just reached the turning point and should start growing from the second quarter of 2003 on. Obviously, this rebound should not be attributed to any general change in the economic policy of Poland. The growing competition, and the approaching European Union accession represent two of the most important structural factors pushing firms to undertaking new investment projects. We also hope that the accession will lead to the improved investment image of Poland, and therefore to the higher FDI inflows. Altogether, we expect visible acceleration of the domestic demand and the increase of the GDP growth rate to 3-4% over the coming quarters.

The improvement in the output growth will be limited by several factors. On the one hand, we expect the import demand to increase in line with the growing investment demand, and the dynamics of exports to fall gradually. That will lead to the slight deterioration of the current account. On the other hand, the dynamics of the consumption will remain stable at above 2%. It is only in 2004 that the government consumption will have to be limited due to the budgetary adjustment to the EU membership. Unless the situation changes, and despite the positive effects of the EU accession, one may be afraid of a risk of the GDP growth stabilizing below 4% in 2004, with higher inflation and current account deficit. In such a situation, no significant progress could be achieved in combating unemployment.

We do not see any major treat for the economic stability of Poland. Albeit the current inflation level seems to be unsustainable, mainly due to the gradual phasing-out of one-time factors that allowed for the remarkable disinflation, the CPI growth should not exceed 3% over the coming months. The exchange rate should remain stable. The new Monetary Policy Council, elected by the early 2004, will be probably much less hawkish than the current one and will start its term by more aggressive rate cuts. We do not think, however, that these cuts will have any significant short-term impact neither on the monetary, nor on the real side of the economy.

TABLE ONE. POLISH GDP pct change vs pvs period
  Quarterly data and forecast Yearly data and forecast
  2003 2004 2003 2004
  Q1 Q2 Q3 Q4 Q1 Q1-Q4 Q1-Q4
GDP Total 2.3 3.3 3.3 3.7 3.1 3.2 (3.4) 3.9  
of which:  
Personal consumption 1.7 2.1 2.3 2.4 2.2 2.1 (2.9) 3.1  
Government consumption 0.2 0.9 1.0 1.1 -0.5 0.8 (1.1) 0.5  
Gross fixed capital formation -2.5 0.5 5.5 6.8 7.5 3.8 (6.3) 7.8  
Exports 10.1 7.2 6.5 6.0 6.1 7.4 (6.5) 6.7  
Imports 3.2 4.5 6.3 7.5 7.4 5.5 (6.6) 8.6  
Memo items:  
Current account as % of GDP   -3.3% (-4.1%) -3.9%  
Registered unemployment as % of labour supply 18.7 18.7 18.5 18.3 18.3 18.3 (17.9) 17.8  
Budget deficit as % of GDP (excluding privatization)   -4.7% (-4.8%) -5.1%  
NOTE: Growth rates presented measure GDP growth in quarters in relation to corresponding figures noted year ago. The column Q1-Q4 is an estimate for a calendar year; previous estimate in brackets.
Source: NOBE Independent Center for Economic Studies



  2002 2003 2004
  Q4 Q1 Q2 Q3 Q4   Q1
12 months CPI inflation 0.8 0.6 1.2 2.2 3.1 (4.0) 2.8
12 months PPI inflation 2.2 3.4 3.8 3.6 3.2 (2.8) 2.3
Memo items:  
Zloty/US$ exchange rate (eop) 3.91 4.00 3.93 3.94 3.97 (3.93) 3.97
Zloty/Euro exchange rate (eop) 3.99 4.32 4.38 4.32 4.28 (4.15) 4.25
Lombard rate 8.75 7.75 7.00 7.00 7.00 (8.00) 5.00
NOTE: Figures for end of period; previous estimate in brackets.
Source: NOBE Independent Center for Economic Studies