Poland cut its growth forecast for this year to 1.5 percent on Monday and admitted its wider government deficit would remain well above the European Union's acceptable threshold as it focuses on stimulating growth. The country has enjoyed two decades of uninterrupted growth fuelled by resilient internal demand and exports to Germany and other European markets, but the growth has now slowed to its lowest level in nearly four years.
The finance ministry had previously clung to a forecast of 2.2 percent expansion of the Gross Domestic Product, but waved a white flag as the statistics office slashed growth in the final quarter of last year to 0.7 percent. The state statisticians also snipped the 2012 growth figure to 1.9 percent from 2.0 percent.
"There are two factors behind this revision," Ludwik Kotecki, the ministry's top economist, told a news conference. "Worth mentioning is lower exports, which result from the weak standing of our main trading partner, the European Union. Second is a drop in private consumption."
Poland has already seen a drop in tax revenue, putting pressure on the government to revise the budget and find ways to boost state coffers, including finding ways to transfer some cash from private pension funds. Finance Minister Jacek Rostowski said the reduced forecast would not necessarily lead to a revision, but did not rule it out. Rostowski also renewed his criticism that the central bank was too slow to act last year amid signs that the economy was heading for a slowdown.
The bank ended up bringing rates to an all-time low of 3.25 percent after five consecutive cuts that ended in March. Some policymakers have already suggested further monetary easing soon. The finance ministry also gave up its hope that the European Union would lift its excessive deficit procedure from Poland this year after raising the general government deficit to 3.9 percent of GDP last year from a previous estimate of 3.5 percent.
Poland now expects to reach that figure this year and to bring it closer to the key 3.0 percent threshhold in 2014. "We will continue to take actions to have the procedure lifted next year," Rostowski said. Most European countries have been struggling to bring their budget shortfalls to EU mandated levels, but for Poland the target is also an important factor for an eventual adoption of the euro. While the central government had taken measures to reduce its budget shortfall, it had a more difficult time keeping tabs on borrowing by local governments.
Economists said that with the looming slowdown, Poland, encouraged by record low yields on its bonds, has shifted its focus to stimulating the economy from drastically reducing its budget deficit. "With current debt financing and good sentiment on the Polish bonds market, the finance ministry is not necessarily desperate to wait for the procedure lifting," said Rafal Benecki, chief economist at ING Bank Slaski. "They will rather present it as a reasonable fiscal adjustment that does not hurt economic growth.
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