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Poland Country Risk Report Q2 2016

Poland Country Risk Report Q2 2016

Core Views

Poland’s robust real GDP growth will continue throughout 2016,driven mainly by household consumption, but also by governmentspending too.

The sharp drop in oil prices has led to a positive adjustment in Poland’sexternal accounts, although growing domestic demand willlead the current account deficit to widen in 2016.

The new Law and Justice government will result in a slight wideningin the fiscal deficit and looser monetary policy.

Major Forecast Changes

As a result of downward adjustments to our Brent crude forecast for2016, we have lowered our forecast for Poland’s current accountdeficit to 1.0% of GDP, from 1.5% previously. Declining oil pricesmay have an automatic stabilising effect, by increasing householddisposable income and consequently consumer imports, but we donot expect this effect to be material in 2016.


Executive Summary
Core Views
Major Forecast Changes
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
PiS Policies To Boost Short-Term Growth
We maintain our above consensus real GDP growth forecast for 2016. Although the new government is a negative outcome for
investors, the impact on growth over the short term may actually be mildly positive as various stimulatory policies are enacted.
Nonetheless, new levies on the banking sector will lead to tighter credit conditions and the government's investor-hostile stance is likely
to weaken foreign investment.
TABLE: GDP BY EXPENDITURE
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
External Trade And Investment Outlook
Further Benefits From Low Oil Prices In 2016
Low oil prices are leading to a structural improvement in Poland's current account balance. However, accelerating domestic demand will
increase import growth across 2016 and beyond, while the new government's investor-hostile policies may lead to a reduction in foreign
direct investment inflows.
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
TABLE: CURRENT ACCOUNT
Outlook On External Position
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
Monetary Policy
Probability Of Rate Cuts In 2016 Falling
In line with our core view, local rate markets are beginning to price out the possibility of further rate cuts in Poland. The ECB's less
dovish than expected extension of its quantitative easing (QE) programme has removed a potential catalyst for further rate cuts, while
upside risks from demand-pull inflationary pressure will grow in 2016.
TABLE: TOP 5 GOODS EXPORTS (2014)
TABLE: TOP 5 GOODS IMPORTS
Monetary Policy Framework
TABLE: MONETARY POLICY
Fiscal Policy And Public Debt Outlook
Sovereign Fundamentals Remain Strong
Although Poland's new government will run a slightly larger fiscal deficit, government debt dynamics remain in reasonably good shape.
The main risk at this juncture is revenue undershoot, as identified revenue sources are optimistic in our opinion.
TABLE: FISCAL POLICY
Structural Fiscal Position
TABLE: MAIN EXPENDITURE & REVENUE CATEGORIES
Chapter 2: 10-Year Forecast
The Polish Economy To 2025
Long-Term Future Looks Bright
We forecast Polish real GDP growth to average 3.5% between 2016 and 2025, down slightly from 4.0% between 2001 and 2011.
Poland is well placed to avoid the pitfalls of the middle income trap and continue benefiting from large catch-up growth with the rich EU
economies.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Constitutional Framework At Risk
We downgraded Poland's Long-Term Political Risk score due to the governing Law and Justice's party's weakening of the country's
constitutional framework and highlight that without a sharp change in course, a sustained deterioration in Poland's relations with the EU
lies ahead.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
A Maturing Regional Power
We consider Poland's Long-Term Political Risk profile to be on an upward trajectory, reflecting the country's maturing political
institutions and greater confidence in the conduct of external affairs. Solid macroeconomic fundamentals underpin our expectation for
improvement over the long run. Nevertheless, Poland still faces significant challenges to political stability in its external relations and at
home.
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: OPERATIONAL RISK
Trade Procedures And Governance
TABLE: EMERGING EUROPE – TRADE PROCEDURES AND GOVERNANCE RISK
TABLE: IMPORT AND EXPORT DOCUMENTS
TABLE: TRADE PROCEDURES BREAKDOWN
Vulnerability To Crime
Chapter 5: BMI Global Macro Outlook
Global Macro Outlook
Downside Risks Gather Momentum
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
TABLE: MACROECONOMIC DATA & FORECASTS

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