Macro hopes sunk

   A spring drought accompanied by stubborn food and oil prices contributed to another year of overshot macroeconomic targets.

   High inflation prompted a series of interest rate hikes that added 600 basis points to key interest rates, boosting them to between 19% and 23%. Although analysts had initially agreed with the government's target of 5.4-6.8% annual inflation for December 2000, they raised this figure on several occasions as a spring drought ravaged crops and international oil prices surged. Even as prices for food and oil eased in November, the consensus now puts year-end annual inflation at 8.9-9%.

   Though inflation is falling, "vigilance will be needed to reach the target inflation of below 4% in 2003," said the International Monetary Fund (IMF) last week after its semi-annual assessment of Poland's economy.

   When inflation wasn't dominating macro headlines, the current account deficit was. Although it reached an alarming 8.3% of gross domestic product (GDP) early on, the gap was measured at 7.3% of GDP in October. An estimated $10.7 billion gap for the year is expected to improve on last year's figure of $11.57 billion.

   In addition, as sky-high interest rates cooled domestic demand and helped the C/A deficit, they also slowed production.

   GDP growth, seen decreasing to 4% next year from an approximate year-end figure of 4.7%, will cause an already worrisome 14.1% unemployment rate to increase in 2001, said James Owen, an economist with SG Bank.

   "I think that the rise in unemployment will cause increasing social and political problems," Owen added.