Page 34 - bne_Magazine_July_2017

34 I Special focus bne July 2017
An economic test for Polish ambition
Tim Gosling in Prague
Poland’s spiky PiS government likes a challenge; efforts to spark “revo- lution” within the EU or organise a huge Nato push in the neighbourhood to openly confront Russia are not short of ambition. However, Warsaw may have been uncharacteristically humble in tar- geting GDP growth of 3.6% this year.
With a healthy dose of luck on its side, the Polish government may be en-route to fulfilling its earlier grand promises to rekindle growth.
The economy let the side down badly last year, but a surge in GDP in the first three months of this year has many observers reassessing their stance on that score.
“GDP growth performance is benefit- ing from a mix of supportive factors that include accommodative fiscal
and monetary policies, a strong labour market performance, gradual recovery in disbursements of EU funds and fairly
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supportive external demand,” says Arnaud Louis at Fitch Ratings.
The Polish economy surprised in the first quarter as it boomed 4% in year- on-year terms, and 1.3% quarterly.
The acceleration over the disappointing 2.7% gain recorded across last year
is stark. The big question is whether the country can keep up the pace through 2017, and beyond.
Warsaw is delighted with the first quarter performance, but the populist PiS is walking a fine fiscal line. Having won power with promises of high social spending, the government has struggled to orchestrate revenue- generating schemes to keep the
deficit within the Stability and Growth Pact’s limit of 3% of GDP.
Last year’s deficit looks solid at 2.4% of GDP despite the slowdown in the econ- omy, but the details suggest one-off income from telecom frequency auctions
and a bit of accounting magic to shift advance VAT payments onto last year’s books helped. The government targets a budget gap of 2.9% this year.
That leaves little room for error; Poland needs to extend the heady first quarter economic performance through the year and beyond. While there are few major new spending schemes expected in 2017, a lowering of the retirement age that will come into effect in October will weigh down the 2018 budget by an estimated 0.4% of GDP.
The first quarter surge in Poland was in line with similarly strong results across the Visegrad region. While the headline GDP growth offered a positive surprise, the details deflated the optimism some- what. In particular, investment – the main drag on the economy in 2016 with a 5.5% year-on-year fall – remained sub- dued in January-March. In other words, private consumption was still left largely alone in the driving seat.