A tale of two think tanks
In its semiannual evaluation of the Polish economy, the International Monetary Fund (IMF) said that the country is profiting from its reasonably strong cyclical position after EU accession, but that further development will depend on making the right policy choices. The Organization for Economic Cooperation and Development (OECD), in its twice-yearly forecast published last week, had similar advice for Poland and other Central European EU members, saying they should improve budget discipline.
"For the first time in years, Poland is enjoying a combination of strong and balanced growth, low inflation, rising employment and a small current-account deficit," said Susan Schadler, head of the IMF mission in Poland.
"Assuming continued cyclical strength in 2007, we would recommend reducing the deficit target below the planned zł.30 billion to zł.26 billion. This would be an adjustment of half a percent of GDP, a solid step towards stabilizing the public debt ratio," she added.
The IMF raised its projections for GDP growth to 4.8 percent in 2006 and 4.5 percent in 2007. The OECD's estimates predicted growth increases in both years, of 4.4 percent and 4.6 percent respectively. Both the IMF and the OECD forecast that inflation will gradually rise from April's figure of 0.7 percent. However, the OECD doesn't see it as reaching the central bank's target of 2.5 percent. Therefore it advises a further quarter-point cut in interest rates this year. The IMF, in contrast, thinks the inflation rate will eventually return to the 2.5-percent target. "That's why it would be good to leave interest rates on hold," said Schadler.
The fund also repeated its recommendation for early euro adoption in Poland. "By eliminating exchange-rate risks, euro adoption would make a more attractive destination for foreign-capital inflows, increasing funds available for investment and growth and stabilizing interest rates at the euro-area level. But, of course, we do realize euro adoption takes a certain amount of preparation," Schadler added.
