Rising fuel and food prices were one of the reasons behind the slowdown both in the euro zone and the new EU countries. Although fuel and food costs are not expected to rise endlessly and will eventually settle and even fall, they will certainly remain at a much higher level than in the past. Another negative influence on growth was the mortgage crisis in the United States and other countries. In Poland’s case the crisis effects were largely neutralized by the country’s EU membership and access to EU funding. An additional booster for the Polish economy will certainly be the Euro 2012 European Football Championship to be co-hosted by Poland.

The current assessment of economic conditions in Poland is based on the following observations:
• Industrial production in June 2008 rose faster year-on-year than in March and May, but slower than in April. Growth in the construction industry over the entire second quarter of the year remained close to the first quarter’s high level.
• In May of this year annual consumer price growth remained close to forecasts. Rising oil, raw-material and food prices will result in further consumer price hikes over June and the third quarter of the year, after which growth in prices will gradually slow down.
• Foreign trade and balance of payments figures for April and May published in June and July by the Central Statistical Office (GUS) and National Bank of Poland (NBP) confirmed the predicted gradual slowdown in foreign trade. An optimistic sign here is that the slump proved milder than expected.
• Employment continued to rise at a fast pace with June slightly slower than the preceding months of the year. Unemployment is falling visibly and wages are on the rise.
• In the first half of the year the implementation of the budget revenue plan was more advanced than the implementation of the expenditure plan, the government-debt-to-GDP ratio remained at a moderate level.

GUS: “After high growth in January-April many sectors of the economy slowed down in May, partly due to seasonal factors”
GUS: After high growth in January-April many sectors of the economy slowed down in May, partly due to seasonal factors. This among others concerned industrial production, retail sales and market services. However, the construction sector managed to retain its high growth pace and positive trends prevailed on the labour market. Employment continued to rise (although at a slightly slower pace than in previous months), and unemployment fell at a visible pace. (Source: GUS Report on the Country’s Social and Economic Situation, June 23, 2008, www.stat.gov.pl)

NBP: “The Polish economy is still in a rapid growth phase (…)”
NBP: The Polish economy is still in a rapid growth phase visible in all major sectors (industry, construction, services). According to GUS, in the first quarter the GDP rose 6.1% year-on-year, at an only slightly slower pace than in the final quarter of 2007 and in keeping with predictions contained in NBP’s previous inflation report (from April 2008). A fast-growing consumer market and rising investments continue to be the main driving force of GDP growth. Exports are still rising at a healthy pace, although their net contribution to GDP growth has been negative since the fourth quarter of 2005 owing to a flourishing domestic market and the connected rise in imports (further enhanced by the strengthening of the zloty). The fast growth of the national economy is accompanied by a rapid rise in employment and sinking unemployment, with average wages growing at a faster pace than labour productivity, the effect of which are rising unit labour costs. The current high economic activity and employment boom are accompanied by rising core inflation and a growing current account deficit. CPI inflation growth is mainly driven by the marked rise in global food and fuel prices and a steep rise in regulated prices in Poland”. (Source: NBP Inflation Report, end-June, 2008, www.nbp.pl)

Economic prospects until 2010 in the inflation/GDP projection enclosed with the NBP Inflation Report for June, 2008

NBP: In 2008 the Polish domestic market is expected to slow down to below 5% year on year, to pick up again in 2009 and settle at around 6%. This will be mainly due to a slowdown in accumulation growth caused by lower investment demand and the visibly smaller contribution of reserves to economic growth compared to previous quarters. To a lesser degree, the fall in domestic demand will be the effect of a slowdown in collective consumption against the previous year, although this will be to a large extent compensated by the relatively high growth in individual consumption. (…) The investment boom visible over the previous quarters of the year will lessen gradually from mid-2008, largely due to the falling demand for new homes. The slumping demand for homes combined with recent interest rate hikes will bring home prices down. However, by 2010 a rising labour market and demographic factors will again hoist demand and prices in the housing sector.
EU funding will have a beneficial impact on the home market also in weaker periods, which will be especially visible in rapidly rising public investment. Adequate use of EU infrastructure funding will make up for lacking public funds in ensuring faster growth in production and private investment. A fall in structural funding towards the end of the projected period will slow down public investment, nonetheless the rising national economy will visibly enhance the private investment market.
Individual consumption growth in 2008-2010 will settle at between 5% and 6% year on year. According to the projection’s short-term forecast high consumption growth will be driven by rising wages (…). Despite the slump on global markets in 2008 and 2009, Poland’s progressing economic integration with the EU will help keep Polish exports relatively high. Poland’s export production relies strongly on imported materials, hence even a temporary low on the domestic market should not considerably reduce imports. Starting from mid-2009 a renewed rise in domestic and foreign demand as well as rising supply driven by a growing labour market will considerably speed up exports and imports. The net contribution of exports to GDP growth will remain negative throughout the projected period and will reach its lowest point in late 2008.( Source: Inflation/GDP Projection enclosed with the NBP Inflation Report, end-June 2008, www.nbp.pl)