Poland: Strong Upturn Despite Ongoing Policy Drift As New Coalition Lacks Majority and Loses Reforming Ministers; Eu-Supported Investment Brings 5%+ Growth Closer

Summary

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Continued acceleration of output growth and purchasing intentions, unaffected by political turmoil, lends weight to the suggestion that Poland's entry to the EU has launched a phase of sustained high growth, fuelled by exports, investment and rapid productivity gains enabling bigger wage rises. Increased EU structural inflows, added to inward investment attracted by the expanding domestic market as well as low skilled-labour costs, give some support to new official projections of 10% investment growth continuing through 2008. Improved revenue prospects have allowed the ruling Law and Justice (PiS) party to bring smaller parties into a formal coalition agreement, without expenditure commitments that go beyond this year's budget constraints. But the favourable economic backdrop, while giving a rare opportunity to resolve longstanding public sector imbalances, reduces the incentive to do so and raises the risk of political infighting as the PiS's new allies start to influence its agenda. Still lacking a lower house majority and at risk of other senior figures following foreign minister Stefan Meller into resignation, the new coalition is unlikely to be stable or to continue the cost-saving measures pursued by its predecessor. Early elections are still a possibility if the opposition Civic Platform - again cast aside in latest coalition talks - chooses to force them. But with the PiS likely to benefit from the present sustainable upturn, these are no more likely to deliver a decisive result than last September's poll.

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Poland: Strong Upturn Despite Ongoing Policy Drift As New Coalition Lacks Majority and Loses Reforming Ministers; Eu-Supported Investment Brings 5%+ Growth Closer

Continued upturn supported by more encouraging productivity data...

Latest purchasing managers' data point to a continued improvement in business confidence through Q1 despite continued difficulty in forming a stable government and refloating the economic reform programme. Prime Minister Kazimierz Marcinkiewicz is on increasingly solid ground in predicting growth of 5% or more this year. This should be fast enough to make a meaningful dent in the 17.8% unemployment rate, despite rapid growth in labour productivity, which reached 7.7% in 2005 - the best ...

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