Fitch affirms Poland A- rating, outlook stable

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Rating agency Fitch has decided to keep Poland’s A- rating and kept stable outlook unchanged. “Poland’s ‘A-‘ ratings reflect its strong macro fundamentals, supported by a sound monetary framework and solid banking sector. The ratings are constrained by weak GDP per capita relative to the peer median and high net external debt,” the agency said.

Fitch forecasts GDP growth at 4.4 percent this year, 3.6 percent in 2018, and 3.2 percent in 2019. While the inflation should hit the 2.5 percent threshold by the end of 2019, but only after Central Bank NBP raises interest rates to 3 percent at end-2019, from the current record-low 1.5 percent. Capacity constraints caused by labor shortages are a downside risk to growth according to Fitch.

Fitch expects the general government deficit will tighten to 1.8 percent of GDP in 2017 from 2.5 percent in 2016. Budget revenues are benefiting from strong GDP growth (including a rise in VAT revenues by 23 percent y/y over the first 9 months of 2017). The agency expects that the deficit will rise to 2.3 percent of GDP in 2018 and 2.5 percent in 2019 as increased spending (including the cost of a lower retirement age and higher investment) will be only partially covered by the continued rise in revenues. Deterioration in the economy and its impact on revenue is the main risk to the forecast.

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