Keeping out the winter sniffles
After the New Year festivities comes the sober light of day and the word on everyone's lips at the start of 2001 is slowdown and even recession.
Since the publication of a Goldman Sachs report late last year pondering whether the U.S. economy is headed for a recession or not, pundits have been predicting soft landings or worse for Wall Street.
To stem the slide last week, the U.S. Federal Reserve shaved half a percentage point in an emergency interest-rate cut. While initial reaction caused worldwide stock market gains at the good news, analysts said the cut could have the reverse effect in the long term as people gradually become more aware of rising panic in America's loftiest institution. Forget Wall Street, what about Main Street?
Nevertheless, the action was certainly welcome news in Poland and the Warsaw Stock Exchange posted sharp gains as the WBJ went to press. Few editorials in the nation's newspapers dwelt too long on recession pessimism, pointing out that the majority of trade is within Europe and European markets have not been radically affected by events in the United States.
And recent statistics would seem to bear their optimism out. Exports rose 7% to $25.6 billion in the first 11 months of 2000, while imports hovered around 3.2% at $37.6 billion. The surge in exports likewise helped narrow the current account deficit to 7.2%, sending out positive signals to investors. Elsewhere, foreign direct investment ended the year at an all-time high of $10 billion.
But Poland can't expect to remain unaffected by Wall Street's ills. Bank of England governor Eddie George issued a surprise warning last week that belts would have to be tightened in the U.K. and that the good times were over. The U.K. is the world's fourth-largest economy, so Poland should take note. What's needed here is some pre-emptive action.
Now all eyes should be on new central bank President Leszek Balcerowicz. To maintain Poland's clean bill of economic health, it's vital that he cuts interest rates. Most analysts don't foresee immediate action, but many expect the Monetary Policy Council (RPP) and Balcerowicz to move on interest rates in the first quarter of 2001 rather than in the second quarter, as previously expected.
A cut in interest rates will help boost internal lending and investment, while maintaining healthy export levels. It will also stem the zloty's continuing strength against the dollar, which will inevitably aid exports and economic growth. Indeed, Balcerowicz should heed the recommendations of the December mission by the International Monetary Fund to Poland to ensure stability in 2001 by prompting interest rate cuts.
It shouldn't be forgotten that even a sneeze can cause influenza if it's not nursed properly.
