Exceeding economic expectations

The first quarter of 2008 brought nothing but positive results for the economy, according to the Center for Social and Economic Research (CASE). Contrary to previous forecasts, economic growth did not significantly slow and the figure for Q1 came in at 6.1 percent according to the Central Statistical Office. That marks a huge improvement on CASE's December prediction of 4.9 percent.

"The economy did not lose much momentum in Q1 2008, despite our previous expectations that statistical base effects would significantly dampen GDP growth. Expansion was driven by domestic demand," said Maciej Krzak, the head of the department of macroeconomic analysis at CASE.

"Due to such positive results, we have had to increase our expectations for future GDP growth. It will be much higher than the 5.2 percent we expected for the next quarter," he added. Inflation data also surprised CASE, and Krzak mentioned the two main factors influencing it.

"[Inflation] has been rising faster than we expected, but along with good weather conditions this year, we will have a good harvest, and this will lead to a decrease in food prices, which will in turn decrease CPI," explained Krzak.

"Moreover, we expect that the speculative bubble of oil prices will eventually burst and prices will fall, as they are completely unrelated to the demand-supply indicator," Krzak said, adding that inflation will begin to decrease in H2 of this year.

The consumer price index grew 4.1 percent y/y in Q1, up from 3.5 percent in Q4 2007. CASE predicts that inflation will stay at the same level in Q2, but will peak at 4.3 percent in Q3 and then start to decrease. According to the institute, CPI will average out to 4.0 percent for 2008 and will amount to 3.0 percent in 2009.