Poland shakes off global recession

A pedestrian passes the showroom window of Ferrari's first Polish dealership. Photo / Bloomberg.

Dante Cinque had buyers lined up even before opening Ferrari's first Polish showroom, taking over the Warsaw site formerly occupied by the Communist Party.

"Poland is much better than it's perceived abroad, in every way," Cinque, general manager of Ferrari Warszawa, said in the store in Nowy Swiat St, which opened in October. "I get the feeling in Poland that wealth is being created."

Poland passed the Netherlands last year to become the sixth-biggest economy in the 27-nation European Union, according to exchange-rate adjusted figures from the World Bank.

The country of 38.2 million people was the only one in the EU to avoid a contraction last year, with growth of 1.8 per cent. While most nations struggle to emerge from the worst recession since World War II, the World Bank forecasts growth of 3.5 per cent this year.

Poland's WIG20 blue-chip stock index gained more than 9 per cent to the end of November in dollar terms, compared with 3 per cent for the region's benchmark Stoxx Europe 600 Index. Credit Suisse, Goldman Sachs and Morgan Stanley are expanding in Warsaw as domestic and foreign companies list on the Warsaw Stock Exchange and the Government plans to sell 40 billion zloty ($17.37 billion) of state assets in 2010-2011.

The country's US$430 billion ($560 billion) economy has been propelled by manufacturers of products such as car parts and machinery that are exported by Germany; tax cuts from the beginning of last year that slashed the top personal income tax rate to 32 per cent from 40 per cent; the 9.7 per cent drop in the zloty against the euro since the beginning of 2008, which has helped make Poland's competitive position; and €67 billion ($115.5 billion) of EU grants earmarked through 2013.

"We've built a bastion of growth," Prime Minister Donald Tusk said in a November 16 press conference on the third anniversary of taking up office.

Poland is prepared for a "test of wills", he said, referring to the EU's next seven-year budget, which may pit the bloc's largest aid recipient against British Prime Minister David Cameron, who wants to curb spending to reduce Britain's record budget deficit.

The spread between Polish and German 10-year bonds narrowed on December 16 to a seven-month low of 290 basis points. Costs to insure Polish five-year debt were at 146.500 basis points as of yesterday. That compares with 496.305 for Portuguese credit default swaps, indicating investors are betting that the east European country is less likely to default than the euro member. Fitch Ratings downgraded Portugal's debt rating one level on December 23, saying the economy faced a deteriorating outlook.

Average gross wages have increased by almost a third over the last five years, statistics office data show.

Unemployment was 9.7 per cent in October, according to EU figures, compared with 14.1 per cent in Ireland and 20.7 per cent in Spain. The economy grew at an annual rate of 4.2 per cent in the third quarter, the fastest pace in two years, buoyed by the 9 per cent increase in retail sales in October.

Liebrecht & wooD is helping build Plac Unii, a 550 million-zloty retail and office complex in Warsaw, to capitalise on rising consumer demand. The company is betting that the country will turn economic gain into political clout.

"In 10 to 20 years, Poland will be one of 'the' countries in Europe," said Marc Lebbe, a Warsaw-based managing director at Liebrecht & wooD.

"There's no reason why it shouldn't wield as much power one day as France or Spain or Italy."

Poland's general government deficit has more than quadrupled since 2007, swelling this year to 7.9 per cent of gross domestic product, EU forecasts said.

The Finance Ministry estimates public debt will reach 53.2 per cent of GDP this year compared with 44.8 per cent in 2007.

If the country's public debt rises above 55 per cent of GDP, it would breach the second of three legal thresholds anchored in Polish law, triggering mandatory budget cuts.

Those legal limits, tougher than the EU's, keep bondholders relaxed, even with Poland set to run the EU's sixth-widest budget gap next year, said David Hauner, head of emerging-market economics at Bank of America Merrill Lynch in London.

GOING UP

- Growth this year 3.5 per cent

- Polish stock index up 9 per cent

- Retail sales in Oct up 9 per cent

- Government deficit has quadrupled since 2007

- Bloomberg