The trouble with holidays …

   That overused but much feared word "recession" was on the lips of analysts last week as the latest economic figures were released by the Central Statistical Office (GUS).

   Regardless of whether recession really is in the air, the data nevertheless makes grim reading indeed and will certainly dash the hopes of many businesspeople who were hoping for some good news before heading off for their summer holidays.

   Industrial output fell 1% in May, producer prices slowed to a record low year on year of 2.5% and manufacturing fell 1.7% year on year, the latter figures possibly a sign that exports are beginning to slow as eurozone countries – Poland's biggest market – continue to show negative economic growth.

   Adding to the overall gloom was news that Poland's budget had already hit 99% of the annual deficit plan and that the government was threatening to increase the deficit to 2.9% of gross domestic product from the current 2.6%. Along with this was a rise in inflation and the continuing high interest rates of 17%.

   The poor industrial production statistics seem to have caught analysts on the hop with many forecasting that growth this year will be even lower than the revised figure of 3%.

   Heads of industry and government departments are now desperate for the Monetary Policy Council (RPP) to help matters by cutting interest rates.

   Meanwhile, members of the RPP were their usual hawkish selves, not giving anything away ahead of the meeting. Some members, however, did try to play down the dire industrial production figures by stressing that economic growth is affected by a host of other factors. Above all, they said the RPP would be scrutinizing the government's budget for the year and it's now generally believed that an increase in the budget deficit will delay or certainly limit the scale of any future interest rate cuts.

   This overall gloom hit the Warsaw Stock Exchange for a second week running with Polish stocks remaining flat amid predictions of thin future trading.

   But the economic gloom and the RPP's continuing stubbornness over rate cuts has played nicely into the hands of the Democratic Left Alliance (SLD). Indeed, the mood of the public is now starting to swing increasingly behind the SLD after its recent attacks on the RPP for its continuing stance on high interest rates. The SLD is making political capital out of the Central Bank's seeming inability to come up with a panacea for Poland's ills.

   According to the latest opinion poll by the OBOP research group, support for the SLD is now 50%, up 9% since May. This would give the Party a clear majority in the September general elections.

   But regardless of who makes political gains from the economic gloom, it's the ordinary Poles and the small and medium-sized businesses that will ultimately suffer if nothing is done to help improve things.

   To breath some life back into the economy it's crucial for the RPP to act on interest rates. And the RPP can take heart that money supply increased 1.1% in the first 10 days of June and was 12.9% higher than last year, according to Citibank's latest data. Private deposits are also still rising and let's not forget that the recent increase in inflation to 6.9% was largely fueled by seasonal price rises and most analysts reckon inflation will drop below 6% year-on-year in July.

   But for many Poles who've yet to book a flight to Greece or Italy, the latest economic figures could well have them looking at holidays much nearer home this summer.