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Poland

Polish gross domestic product (GDP) increased 3.4% in the first quarter of 2014 y/y, unlike 2.7% in the fourth quarter of 2013. On the other hand, due to the updated estimate of CSO from the end of May 2014, domestic demand increased about 3%, in turn. These figures show the economic rebound after a tough last year, in which GDP grew by 1.6% and domestic demand was at -0.2%. The data provided by CSO and Eurostat show that, in terms of growth in 2012, Poland was ranked fifth among the 27 EU countries, after the countries of Latvia, Lithuania, Malta and the United Kingdom. International institutions, including the OECD and the European Commission expect that in 2014 the Polish economy will grow between 2.7 percent and 3.6 percent y/y and in 2015 between approx. 3.6 percent or more.

In recent years, Poland has attracted the interest of the observers to the fact that its economy is doing relatively well compared to the region of Central and Eastern Europe and the European Union. This was particularly visible in 2009, when, according to the Eurostat data, the Polish GDP grew by 1.6 percent, which was the only positive result among the 27 EU countries, thereby Poland is known as “the green island”. Also, in the years 2010 and 2011, the Polish economy has distinguished itself among the countries of Europe: the Polish GDP with 3.9 percent growth in 2010 was the third largest in the EU, while 4.5 percent growth in 2011 made Poland the fourth place in the Union. Growing faster than the neighborhood countries, Poland is approaching the economic level of the Western European Union countries. In 1995, Polish GDP per capita was 43 percent of the average rate of the EU, in 2000 - 48 percent, and in 2011 - already 64 percent, according to Eurostat data.

The Polish GDP growth rate will increase from 3.0%, in 2014 to 3.3%, in 2015 - as the European Bank for Reconstruction and Development predicts in the September's report. Previously, the bank had forecasted the growth of 2.8% both in this and next year. Higher forecast for the Polish market promises higher exports and a stronger industrial production in the first half of the year. “The embargo on the export of food somewhat affected on the Polish economic growth, although food exports to Russia is barely 0.2 percent of GDP” – as emphasized in a report published on Thursday. "Stronger growth in Poland and Hungary improves the prospects for Central Europe" - says the September press release of the bank.

On the other hand, JP Morgan raised the GDP forecast for Poland in 2014 to 3.2 percent from 2.9 percent. The Bank foresees 3.2 percent increase for 2015. The GDP for the first quarter of 2014 in Poland increased by 3.3 percent; however it was 2.7 percent in the fourth quarter of 2013. In the commentary on emerging markets, JP Morgan shows that, on the production area, the growth engines have been companies, especially the construction companies, which benefited from the mild winter, while on the sales side in order to support the GDP, domestic demand, particularly investment is considered in long-term and focused on the consumption demand. JP Morgan lowered its inflation forecast for the period 2014-15 indicating to the weakening of pressure of core inflation and a softer outlook to the food price inflation. Average annual inflation rate for 2014 is predicted 0.4 percent (previously 0.8 percent), while for 2015 approx. 1.6 percent (previously 2.0 percent). The Bank does not expect to return to the average target point for inflation of 2.5 percent before 2016. In April, the inflation rate in Poland was 0.3 percent, while it was 0.7 percent in March.

In the short term, analysts do not rule out the acceleration of inflation in the statistical basis for comparison (delayed impact of excise tax increases and so called Junk fee which enforced in July 2013.). Failure of the second of these factors with the comparative base will decrease the rate of inflation to near zero. The Bank expects that core inflation will be about 1 % to the end of 2014 and will gradually decrease only in 2015. JP Morgan expects deflation in food prices in Poland in the summer months in comparison with last year. Among the reasons for the decline in food prices indicates a good harvest last year and an embargo on exports of Polish pork, which resulted in the decrease of meat prices in the domestic market. The Bank also mentioned declines on the prices of telecommunications services (totally by 13 per cent from the beginning of 2013.), mainly due to increasing competition between service providers. Inflation in services generally considered as "positive and stable".

Poland's GDP growth will increase from 3.2 percent in 2014 to 3.3 percent in 2015 - the International Monetary Fund forecasts in the October edition of the World Economic Outlook. The Fund in the April edition predicted respectively 3.1 and 3.3 percent. As a summary of consultation of IMF with Poland, in the framework of IV Article of the IMF Statute, the Executive Council of the International Monetary Fund predicted that in 2014 Poland's GDP will grow by 3.3 percent. IMF in October WEO raised the forecast of this year's growth in the group of developing economies in Europe to 2.7 percent from 2.4 percent which forecasted in April. "The revision mainly reflected the strengthening of private consumption in Hungary and strong domestic demand in Poland" – added. As indicated by the IMF, growth in Poland in 2014 will be supported by rising investment and falling unemployment and in Hungary by the significant easing of monetary policy and increased public spending. Increase forecasts for CEE countries resulted with reduction forecasts for the euro area and Germany.

According to the forecasts by the Research Institute for Market Economics (RIME), in 2014 the growth rate of exports in Poland will be 5.8 percent, while imports at the same time will increase by 6.5 percent. This means that the contribution of foreign trade to GDP will be slightly negative. In the year 2015, the growth of exports should be expected to accelerate, thus, the growth will be 5.1 percent and the positive dynamics of imports, which will increase by 6.5 percent. The situation in foreign trade will be primarily shaped by the state of the economic situation in the European Union, thus accelerating the growth of Polish exports to the projected level in the next year is conditioned by the improvement of the economic situation in our main trading partners. The situation in foreign trade will be primarily shaped through the economic situation in the European Union, thus the acceleration of the growth of the Polish exports to an estimated level for the upcoming year is conditioned by the improvement of the economic situation in our main trading partners.

According to the data published on the website of the Ministry of Regional Development, on 29 June 2014, since the start of the programs signed with beneficiaries 100,566 grant agreements were signed in the amount of 401.3 billion zł of eligible expenditure, including co-financing of the EU - zł 278.2 billion, representing 98.8 percent, allocated for the years of 2007-2013.

The inflow of funds from the EU to Poland will still increase in the years of 2014-2020. The European Parliament approved the European budget for 2014-2020 in November 2013, which provides for Poland 105.8 billion euro (441 billion zł), of which 72.9 billion euro (303.6 billion zł) will be spent to the cohesion policy and 28.5 billion euro (118.8 billion zł) on the Polish agriculture. As a result of the conversion of the so-called EU funds into the current prices, which will take place from the end of 2013, the value of funds for the cohesion policy for the period 2014-20 for Poland should be further enhanced in December to 82.1 billion euro - stated in late April, the current Minister of Regional Development Elżbieta Bieńkowska. In this way, Poland is the biggest beneficiary of EU funds - not only in cohesion, so far, but in every aspect.

After a difficult 2013, the Polish economy started to finally accelerate. According to the Central Statistical Office, in the first quarter of 2014, the total retail sales grew 5.5 percent y/y in Poland. In contrast, during the whole 2013, retail sales were at 2.3 percent y/y. Therefore, we can talk about the rebound in retail sales and the rebound from the bottom of the economic cycle.

The unemployment rate in Poland in late 2013, according to the Eurostat methodology, with taking into account the seasonal factors, was 9.9 percent. The unemployment rate gradually decreased in 2013, starting the year at 10.5 percent in January - according to the data from Eurostat.

The European Commission, in its forecast published in February 2014, estimates that the unemployment rate in Poland - according to Eurostat methodology will be on average 10.3 percent throughout 2014 and in 2015 drops to 10.1 percent.

After a weak 2012, which, according to the calculation of the NBP, the Polish FDI inflow last year amounted to 4.72 billion euros, both the government and the Polish Information and Foreign Investment Agency estimate that, in 2013, the value of investments in Poland should reach a similar or a higher rate than 2012. On the other hand, the accumulated net inflow of FDI after twelve months of 2013 years was negative, with the value of -2.206 million - reported NBP in respect on February 2, 2014.

Poland in recent years stands out positively in Central Europe in terms of FDI inflows. According to UNCTAD online database, announced at the beginning of May 2013, in 2006-2011, foreign direct investment in Poland was, in total, about 94.9 billion US dollars and was the highest in the region (for comparison, FDI in the Czech Republic in the same period was about 36, $ 8 billion and in Hungary - about 26.1 billion USD).

According to data from the Central Statistical Office, in the first quarter of 2014 there was a significant increase in exports and was much more visible than last year, an increase in imports. Measured in gold, at current prices, export in the period of January-March were up to 7.8 percent (and even as 9.6 percent much as calculated in US dollars), compared to the same period in 2013 and amounted to 165.08 billion zł, imports increased by 3.6 percent y/y (5.3 percent, calculated in dollars), reaching 163.87 billion zł. Decreased total negative trade balance: the first time in the history of Poland has developed a positive balance of foreign trade at 1.2097 billion zł. and the followed quarter maintained the same trends in foreign trade in 2013 when export supported the GDP growth in 2013, in Poland; Economists expect that the positive contribution of the net exports will gradually expire, thanks to the recovery in Germany.

According to the CSO, the geographical structure of trade turnover in the first quarter of 2014, the share of developed countries (including the EU) decreased, while the importance of developing countries and countries in Central and Eastern Europe increased. This may indicate that in the face of the economic slowdown in Western European countries, Polish companies are looking for partners in other, more promising markets.

Poland's the most important trading partner is Germany, which in the same period of the last year, was the recipient of Polish exports, with 26.3 percent, while the imports were 21.6 percent to Poland. Germany's share in these categories increased, compared to the same period of last year - about 1 percent for export, and by 0.4 percent for imports.