Poland, battling a steep economic slowdown, approved on Tuesday an initial 2010 budget outline that envisages growth of just 0.5-1.3 percent next year and a source said it would also cut forecasts for growth this year. Poland, the European Union's largest ex-communist economy, had hoped to expand by 4 percent in 2010, according to government plans for joining the euro drawn up before the global crisis hit once-booming central Europe last year.
Industrial output has tumbled in recent months while unemployment climbed, and the International Monetary Fund and European Commission have both forecast the economy will shrink this year - in contrast to Warsaw's prediction of growth. All of that adds up to a jump in the country's public sector deficit which looks set finally to scupper the government's ambitious plans to join the euro in 2012.
"The government approved the report on the basic macro-economic indicators as the basis for work on the 2010 budget bill," the government said in a statement. "The finance ministry estimates inflation in 2010 should stand between 1.5 and 1.9 percent," it added.
The government traditionally approves the initial macroeconomic parameters for next year's budget in May, before setting final targets for the headline budget deficit, revenues, spending and borrowing later in the year. Analysts said the figures - obtained by Reuters earlier from government sources - erred on the side of caution because the government has been wrongfooted in recent months by the extent and suddenness of the downturn.
A Reuters poll a month ago showed bank economists forecasting an average of 2.2 percent growth next year. "The outline is cautious and this is positive because so far this year the finance ministry has been overly optimistic and stuck to forecasts we knew could not be realised," said Piotr Bielski, senior economist at Bank Zachodni WBK. "This marks a return to realism and a cautious approach. If things turn out better, we will just be happy."
CRISIS Poland has so far weathered the global economic crisis better than its neighbours in ex-communist central and eastern Europe. With a large internal market of 38 million people, it is less reliant on exports than the Czech Republic or Hungary. The median forecast from a Reuters poll of analysts a month ago predicted the Polish economy would grow 0.8 percent this year, slowing sharply from 4.9 percent growth in 2008.
But Brussels on Monday forecast a 1.4 percent contraction and the government is steadily retreating on what many foreign analysts say are very optimistic assumptions for 2009. A government source told Reuters the government now forecast expansion this year at 0.5-1.0 percent, down from a previous "worst case" estimate of 1.7 percent.
Finance Minister Jacek Rostowski, who said on Monday he thought growth should still be above 1 percent, told the Dziennik daily that Poland may revise its 2009 budget in July. The EU Commission said it expected Poland's deficit to hit 6.6 percent of gross domestic product this year, far above the 3-percent ceiling set by the EU for euro aspirants. Rostowski also rejected that forecast but conceded the deficit might reach as high as 4.6 percent in 2009.
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