The Global Currency Investor A Quarterly Analysis of 50 World ...

Jan 09Jul 09Jan 10Jul 10Jan 11Jul 11Aug 09Feb 10Aug 10Feb 11Aug 11COUNTRY REPORT: PolandOutlook: PositiveS&P Moody's Rates Policy 3m 5y 10y[30-Sep-2011]Rating (LC) A Stable A2 Stable4.50% 4.66% 5.28% 6.00%Economy and Market OutlookFinal Q2 GDP data was revisited upwards from 4.2% to 4.3% y/y with domestic demand remainingthe main engine of growth and net export contributions largely suppressed. Fixed investmentspending has risen to 7.8% in Q2 y/y from 6% in the previous quarter, receiving some support frompublic infrastructure spending ahead of the 2012 Euro Cup. Private consumption, in turn, stayedlargely flat at 0.9 q/q sa. Relatively strong growth driven by domestic purchases as well as aweakening zloty both effectively prevent a disinflationary trend in the country, albeit fruit andvegetable prices have seen some softening in recent months globally. During the latest MPCmeeting, monetary policy makers‟ dovish stance was reiterated and rates were kept on hold, aswaning global demand is anticipated to have a knock on effect on growth rates in H2 11, effectivelycurbing lingering inflationary pressures in the process. Although growth remained strong in Q2,early indicators for Q3 point to a slowdown, with PMI down to 51.8 in August and weakeremployment growth data coming from labour markets (unemployment at 11.7% in July). Hence,due to the current uncertain climate, the rates are expected to be kept on hold at least until the endof the year. As for the currency, the zloty came under pressure, in the current risk averseenvironment, losing ground both to the dollar and the euro. On the back of a strong positivecorrelation to the euro, the direction of the currency move in the short term is set to be determinedby further uncertainties relating to the euro zone, with a potential mild depreciation against thecommon currency in the event of rapidly deteriorating external conditions, movement away from theEM assets and flight to quality.4.74.54.34.13.93.7EUR/PLNJPY/PLN4.504.003.503.002.505.55.04.54.03.53.02.52.01.5CPI y/y %3.52.00Politics2010 2011 (f) 2012 (f) President: Bronislaw KomorowskiReal Growth (%) 3.8 3.8 3.0 Prime MinisterNext elections: parlamentary, October 2011CPI (%)* 3.1 3.5 2.5 1.8Current account (% GDP) -4.5 -5.0 -5.1Fiscal balance (% GDP) -7.9 -5.5 -3.8Government Debt (% GDP) 55.0 56.0 56.4Daily volumesFX Reserves*End of YearSpot FXUSD1.3bn106bnSource: IMF, S&P, Bloomberg, BarclaysThe intensification of political risk, Ahead ofthe parliamentary elections, is largelyexpected, as recent polls show a minor lossof support for the ruling Civic Platform.There is little doubt that the currentadministration has the highest chance of reelection,however, the question of winingthe majority of seats in parliament is yet tobe answered.39Confidential – not for redistribution. This material must be read in in conjunction with the “Important Information” statement provided on the last herein. page.