How Poland escaped the recession

Eastern Europe was the region “most blighted by the financial crisis”, says Lex in the FT. But one country managed to escape recession last year. Having grown by 5% in 2008, Poland managed to expand by another 1.7% last year. How?

One reason for its resilience is its comparatively low
reliance on exports, which comprise 40% of GDP. A flexible currency also helped
temper the down­turn. In addition, Poland “has a huge internal market”
of 38 million people, says Monika Kurtek of Bank BPH. Government spending on
infrastructure and strong consumption bolstered domestic demand. Retail sales
jumped by 7.2% year-on-year in December.

It helped too that the banking system is in “reasonable
shape”, says Neal Shearing of Capital Economics. Foreign-currency -denominated
lending is relatively low, tempering the impact of the falling currency on
households and businesses. Banks’ funding positions look pretty solid too,
given low short-term external debt. Lending to firms may have shrunk, but
lending to households has continued to climb.

A less severe credit crunch, a competitive currency and
comparatively solid domestic demand all mean Poland is likely to keep
outperforming, according to Morgan Stanley. But the bank is not pencilling in a
quick rebound to pre-crisis growth rates. Unemployment is still rising, which
militates against a big jump in consumption, says Marcin Mrowiec of Bank Pekao.
External demand is likely to remain sluggish and the government is planning to
cut public spending.

Given all this, the stockmarket, up 33% last year, now
seems set to struggle – it still appears to be expecting a sharp earnings
rebound. Nor can the market escape the influence of “global investment
sentiment”, says the Warsaw Business Journal. A renewed bout of risk aversion
as the global recovery disappoints is a danger for all emerging markets. There
will be better entry points for investors in Poland. Indeed, Shearing thinks the
WIG index could fall by up to 10% this year.

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