The Year in Review. Macroeconomy: Rocky road ahead for 2008
The year 2008 will inherit an economy in good condition. GDP growth throughout 2007 was high, although it peaked early - growth in the first quarter amounted to an exuberant 7.2 percent. Since then, however, the Polish economy has shed some of its swagger and GDP growth is expected to hit 6.0 percent in the last quarter. The general mood among economists is that Poland will enter a period of slower growth next year and they are calling on the government to implement reforms which could boost the economy. However, data from Q3 were better than expected, which could mean economists' forecasts are overly pessimistic. The Center for Social and Economic Research (CASE), for one, plans to revise its predictions. "We have to change our expectations," said Maciej Krzak, head of the macroeconomic team at CASE. "The Polish economy is doing better than we thought and our prediction for the end of the year is much too low. I was surprised when GUS [the Central Statistical Office] reported 6.4-percent growth in Q3.
That means for sure that Q4 will not see 5.9-percent growth as we previously thought," he added.
According to Ministry of Finance estimates, GDP growth in Q4 will amount to 6.0 percent, while for the whole of 2007 it will stand at 6.5 percent. "GDP will continue to grow," said Michał Macierzyński, an analyst at Bankier.pl. "Growth at the beginning of 2008 will only be lower on paper. In comparison to the strong growth in Q1 2007, Q1 in 2008 will be lower, but in real terms the economy will not slow down," he said.
Fewer workers, more jobs
Another macroeconomic factor putting a smile on economists' faces in 2007 was the falling unemployment rate. When Poland joined the European Union it was expected that unemployment would fall, and this year that expectation was validated. Unemployment fell each month, almost without exception, dropping by approximately 25 percent since January. That equates to around 590,000 fewer people out of work.
"The main reason [for this] was, unfortunately, the large outflow of the workforce from Poland to Western Europe. But another factor was also a higher supply of work places," explained Macierzyński. The unemployment rate in Octo- ber and November stood at 11.3 percent according to the Ministry of Labor and Social Policy, its lowest rate since July 1997.
Strong demand, strong złoty
Poles' growing affluence has resulted in higher demand and consumption, which in turn has led to rocketing production figures. In Q1 2007, the manufacturing industry stood at 80 percent of total capacity, according to data from IPO.pl. But the picture isn't all rosy. "Unfortunately, consumption is largely being financed through loans. The total amout of household debt is rising faster than GDP. Soon banks will lose liquidity. The RPP needs to step in," Macierzyński told WBJ. "The strong złoty is also a threat to enterpreneurs who depend on exports," said Jeremi Mordasewicz of the Polish Confederation of Private Employers (PKPP) Lewiatan. "Because of the złoty, exports are dropping and imports are rising. Poland's trade balance will get worse. This could also boost the inflation rate," he added. "The only good thing about our strong currency is that it ameliorates the rising global fuel prices," Bankier.pl's Macierzyński said.
The specter of inflation
Higher consumption also influences inflation, which has proven a burden to the economy lately. "The Monetary Policy Council [RPP] has been quite late in raising the key interest rate. Inflation expectations were high a long time ago and that was the moment to think about higher interest rate. I understand, however, that such decisions are not popular, so the RPP is cautious in its monetary policy," said Macierzyński.
Enomorous wage growth was a major factor behind inflation - according to GUS it stood at 8.9 percent, yearon- year, in the Q1-Q3 2007 period. Data from IPO.pl suggests that increasing demand has been generated by increasing wages and also changes in legislation. This has resulted in inflation outstripping the RPP's target. In November, CPI stood at 3.6 percent, while the inflation target was 2.5 percent. The next increase of the currently five-percent interest rate is expected in H1 2008. "Still, [interest rates] will not influence fuel and food prices, which are significant factors in inflation growth," said Macierzyński.
The Irish hope
"The [continued] success of the Polish economy is possible," said PKPP Lewiatan's Mordasewicz. "We want to succeed, but following the Irish model, as the PO-led government promised, he added. "Now the government has to deal with that enthusiasm and this could be difficult because hope can't grow, it can only shrink," said Tadeusz Mosz, a business journalist with TV station TVP.
