Growth up - but still weak

 Polish year-on-year economic growth was as fast as expected in the second quarter, however, the Q2 result still revealed a quarter-on-quarter dip.

The economy shrank 0.2 percent on a seasonally adjusted basis against the first quarter, according to figures released by the Central Statistics Office (GUS), as strong exports failed to offset weak consumer demand and a slow rise in investment spending.

"GDP on the whole is expanding below potential. Nothing in this shows a sudden shift upwards in the pace of growth," said Janusz Jankowiak, chief economist with BRE Bank in Warsaw.

After a one-off burst in the first half of 2004 due to accelerated demand in the run-up to European Union entry, Poland's economy has struggled to keep pace with its smaller regional neighbors.

Its buoyant export sector continues to run strongly, with this year's current account deficit well below earlier expectations, but there is still little sign firms are funneling bumper profits back into the higher investment needed to sustain strong growth in the long-term.

Finance Minister Mirosław Gronicki said the failure of domestic demand to pick up was worrying, but stood by his recently reduced 3.3 to 3.5 percent growth forecast for the full year and predicted improvement in the second half of the year.

"Weak domestic demand... as well as a seasonally-adjusted fall in GDP (quarter-on-quarter) remain a concern, even though growth will accelerate in the coming quarters," he said.

Year-on-year investment grew 3.8 percent, up from one percent in the first quarter but well shy of the double-figure growth analysts hoped for at the start of 2005. (Reuters)