In September external determinants of macroeconomic conditions continued to deteriorate for most of the new EU member states, including Poland. The crisis on the mortgage and financial markets, and high and volatile prices of oil, other strategic raw materials and food are still the sources of risk on a global and regional scale. The Polish financial market is relatively less developed than financial markets in other countries so the impact of the credit crunch on the Polish economy has been limited. As a result, the country’s economic growth and inflation have been less affected compared to most other EU countries. In mid-September Prime Minister Donald Tusk announced Poland could enter the euro zone in 2011, a move which would require the government and the central bank to pursue a well-coordinated policy towards a lasting and balance economic growth.

The current assessment of economic conditions in Poland is based on the following observations:
● Central Statistical Office (GUS) data on sales in the industrial, construction and retail sectors in the year to August 2008 and September outlook surveys confirmed earlier projections that the rate of growth would be weakening.
● Inflation stays at an increased level but is expected to fall gradually in coming months.
● Despite a slowdown on foreign markets, growth in Polish exports is still fast, through weakening.

GUS: “After a relatively high rate of growth in the first half of the year, the most important sectors of the economy slowed in July and August.”

Central Statistical Office (GUS): In August 2008 industrial sales were below the August 2007 figure. Growth in construction and assembly output and retail sales was slower than in previous months. The situation on the labour market was still favourable but the year-on-year increase in employment was lower than in previous months. With a high increase in consumer prices, real wages in the commercial sector rose at a slower pace due to the weakening of nominal wage growth. (...) According to September outlook surveys, manufacturers reported a decrease in domestic and foreign orders. Their outlook for production was still favourable and remained similar to previous month’s predictions. But the outlook for the manufacturers’ financial situation worsened considerably. Construction companies reported a further increase in domestic orders, though slightly lower than in August. Their outlook for production ad financial situation was favourable, though more cautious than in previous months. (GUS Report on the Country’s Socio-Economic Situation, September 26, 2008, p. 3 and 4; www.stat.gov.pl)

NBP: “In H1 2008, the Polish economy was in a period of fast growth encompassing most of its sectors, but the rate of economic growth has been gradually decreasing for several quarters now.”

National Bank of Poland (NBP): Consumption and investment still made the largest contribution to GDP growth. Exports were still on the rise but the contribution of net exports to GDP growth was negative due to a strong growth in domestic demand and imports helped by the appreciation of the zloty. At the same time, current account deficit was widening. The fast economic growth was coupled with a strong increase in employment, decrease in unemployment and a high wage growth. The average wage was increasing much faster than labour productivity. As a result, unit labour costs rose considerably. Core inflation was also on the increase. In mid-2008 CPI inflation stayed above the central bank’s inflation target, which was largely due to a strong increase in prices of agri-food products and power raw materials on international markets, and major increases in regulated prices in Poland, that is factors which are beyond the direct control of the country’s monetary policy. CPI inflation was also fuelled by growing prices of some services. On the other hand, inflationary pressure was moderated by a considerable strengthening of the zloty, the central banks’ interest rate hikes started in 2007 and a decrease in prices of processed goods imported from countries with low manufacturing costs. Despite the acceleration in prices, in mid-2008 inflation was much lower in Poland than in most other Central and Eastern European countries. (NBP, “Guidelines for the Monetary Policy for 2009,” September 30, 2008, p. 3; www.nbp.pl)

NBP: “(...) the increased turmoil on financial markets recently may further contribute to the weakening of economic growth in the external environment of the Polish economy.”

National Bank of Poland (NBP): Data obtained recently signal that, despite the better than expected GDP figure for Q2 2008, the economic growth may decrease considerably in the next quarters. At the same time, data on labour market situation indicate that wages are still increasing fast and that there is a gap between wage growth and labour productivity growth. Data on economic activity in the euro zone suggest that the GDP growth rate is still falling quite sharply in this region. In the United States, economic activity is expected to slow in the next quarters. Additionally, the increased turmoil on financial markets recently may further contribute to the weakening of economic growth in the external environment of the Polish economy. At the same time, many countries still have increased, though diminishing, inflation levels. (NBP communiqué after the Monetary Policy Council meeting, September 23-24, 2008; www.nbp.pl)