Polish Upgrade Unlikely Amid Euro Crisis, Moody’s Says
Moody’s plans to cut its 2013 growth forecast for Poland from about 3.1 percent and predicts gross domestic product will rise 2.3 percent this year, said Jaime Reusche, an analyst at the ratings company. A current-account gap and reliance among banks on foreign financing also hamper an upgrade, he said.
“Looking at Poland credit as a whole, there’s only so far you can go on the rating side. The limitations are the external vulnerabilities,” Reusche said yesterday in a phone interview from New York. The revision to Moody’s 2013 growth forecast won’t be “drastic.”
Growth in the European Union’s biggest eastern member, which reached 4.3 percent in 2011, is slowing as the euro area, its biggest trading partner, slips into recession. Moody’s has kept Poland’s rating at A2, its sixth-highest investment grade, since 2002, data compiled by Bloomberg show. It has a stable outlook on the rating.
The zloty lost 0.3 percent to 4.0782 per euro as of 12:49 p.m. in Warsaw, paring this month’s gain to 0.9 percent, the eighth-steepest among 25 emerging-market currencies tracked by Bloomberg. The yield on 10-year government bonds rose eight basis points to 4.94 percent, a two-week high.
Moody’s forecasts that the government will narrow the budget deficit to 3 percent of GDP or less next year and predicts “some minor slippage” to the official 2012 target, with the gap to reach 3.2 percent, Reusche said.
“If there is slippage from next year’s target, that’s still tolerable for the outlook,” he said. “But if it doesn’t come under 3 percent, that starts to undermine the credibility of the fiscal policy.”
Narrowing the budget gap to within the bloc’s 3 percent limit will allow Poland to escape the EU’s so-called excessive- deficit procedure. Failing to do so may cost Poland access to development grants that helped it become the only member of the 27-nation EU to avoid a recession in 2009.
Earlier this year, Prime Minister Donald Tusk’s government pledged to reduce the shortfall to 1 percent of GDP in 2015, a goal that assumes the economy will accelerate in coming years.
“A fiscal slippage is not terrible,” Reusche said. “But not clearing an excessive-deficit procedure over the next two years would really start chipping away at fiscal-policy credibility.”
Foreign investors dodging the euro region’s debt crisis have been lured to Polish bonds by Tusk’s budget-deficit cuts and growth that’s outpacing most of Europe. They own a record 32.3 percent of zloty-denominated government debt after raising holdings 6.6 billion zloty ($2 billion) in June for the biggest increase in 16 months, the Finance Ministry said last week.
“You’re getting a ‘feel-good’ sentiment from non-resident holders of debt and you don’t really want to change that by undermining your fiscal credibility,” Reusche said. “At those moments of market volatility your fiscal credibility is key and you can’t lose it.”
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