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bne February 2018 Outlooks 2018 I 29
The EU is a risk factor for PiS. The ruling party may be walking on thin ice with several issues that are infuriating Brus- sels. Logging in the Bialowieza Forest, refusing to take part in the migrants relocation scheme, targeting critical media, and – the hottest issue of conten- tion – the reform of the judiciary have all eroded Warsaw’s previous status
of a poster child for EU integration.
Morawiecki will try to improve Poland’s standing in Brussels, but that ambition came under severe pressure at the turn of the year after Poland completed
the overhaul of the judiciary. The reform paves the way for PiS to exert political control over the country’s courts, including the Supreme Court.
The EU responded with triggering
of the procedure to suspend Poland’s voting rights in the bloc, under Article 7 of the Lisbon Treaty.
Although suspension is not likely
to come into effect because Poland’s ally Hungary – another “illiberal democracy” – has long said it will block the sanction, the spat over the courts will further damage Poland’s relationship with the EU. The EU could then retaliate by reducing funding for Poland’s development.
PiS appears to be willing to confront the EU. Morawiecki said during the recent EU summit in Brussels that he was expecting the EU to trigger the procedure but that the government’s reform plans were necessary anyway.
Morawiecki’s defiance demonstrates the PiS’s confidence that – barring
a really huge scandal (smaller ones have done PiS no harm) – the government will be immune to political crises, domestic or international, as long as the economy keeps doing well.
Odds for a political turnaround appear slim, given the weakness of the opposi- tion. And street protests are no longer attracting critical numbers of people.
If there is a political question mark, it is President Andrzej Duda. He vetoed PiS’ first attempt at a power grab in the
judiciary, reportedly causing major friction in the PiS camp.
While Duda duly signed off on the new judiciary bills – even though his versions were changed thoroughly by PiS – he
is clearly seen as less of a certainty in government circles. Duda is the only major power broker in Poland that Kaczynski cannot remove at will;
Polish presidents also have a history
of growing independent of their parties.
On the economic front a robustly growing economy is projected for 2018, with consumption to keep fuelling growth, helped by rising wages driven by the tightening labour market,
as well as the government’s social transfers, notably the flagship 500+
to fast economic growth and improved collection of taxes it maintained
a surplus at the end of October, according to the latest available figures.
While a deficit is still projected to occur at the end of the year it will likely be less than half of what was planned
in the budget bill, the government boasts. The general government deficit is expected at 2.6% of GDP in 2017.
With inflation set to rise close to, or even beyond, the central bank’s target of 2.5%, the consensus is that there will be a hike in the interest rates in late 2018.
The rate has been at record low 1.5% since March 2015. That has been “con- ducive to maintaining the Polish econ-
“Duda is the only major power broker in Poland that Kaczynski cannot remove at will”
child benefit programme. In the third quarter, GDP expanded 5.2% y/y.
Investment growth remains disap- pointing at 3.3% y/y in the third quarter but that is already an accel- eration on the 0.8% annual expansion in the second quarter and suggests a decisive pickup will come in the final quarter of 2017 or in early 2018.
Overall, with consumption slightly weak- ened but investment on the rebound, Pol- ish GDP is forecast to grow 3.8% in 2018, according to the European Commission.
The Polish budget had projected a deficit of PLN59bn for 2017 but thanks
omy on a sustainable growth path and retaining macroeconomic balance”, the rate-setting body, the Monetary Policy Council (MPC), insists almost routinely.
The Warsaw Stock Exchange is widely expected to continue experiencing the current rebound in investors’ activity in 2018 on the back of the overall positive business sentiment. The Polish zloty is also likely to strengthen against the euro, while the yield on the Polish 10-year bonds could move closer to 3.9% from the current level of over 3.2%. Those predictions could be revised if political factors, such as an escalation of conflict with the EU or a political crisis, get in the way.
Read the full Polish Report here:
http://pro.intellinews.com/poland-outlook-2018-134702/?source=czech-republic
Read the Romania Outlook online here:
http://pro.intellinews.com/romania-outlook-2018-134853/?source=romania
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