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Kotecki Says 4% Growth Gives Polish Budget Head Start for 2012

Poland’s economy will expand at a 4 percent rate this year, fast enough to shave 10 billion zloty ($3.45 billion) off its budget deficit and allow the government to begin financing next year’s needs, Deputy Finance Minister Ludwik Kotecki said in an interview in Warsaw yesterday.

On the budget deficit and borrowing needs:

“Based on this year’s solid economic growth and with fiscal consolidation is on track, we estimate that the central budget deficit will be at least 10 billion zloty less than planned while the general government deficit will be narrower than our target of 5.6 percent of gross domestic product.

“Since we’ve already met our funding needs for this year with about 50 billion zloty of cash on hand, we have a real opportunity to begin financing next year’s deficit. We’ll start pre-financing for 2012 with our exchange offer auction in September. Market conditions will determine which segments and instruments we’ll tap, along with the scope of pre-financing.”

“The risks to economic growth in Poland are greater than they were a few months ago due to the global slowdown. However, these are external risks beyond our control. Still, we have public investment running at about 6.6 percent of GDP, the highest level in Europe and in our history, largely funded by the European Union. This investment spending won’t start to decline until 2013 and will help sustain GDP growth next year. Preparations for the EURO 2012 soccer championships will also act as a stimulus. Consumption growth should remain stable and I don’t see any serious risk of a decline there.

“Our top priority remains to cut the general government deficit to 3 percent of GDP. Any small decline in budget revenue would be offset by greater savings to ensure that we meet the European Commission’s expectations for deficit-reduction.

On economic growth:

“GDP growth at 4.3 percent was a pleasant surprise; the pace and structure were both better than we expected. Above all, we can finally see a recovery in fixed investment, as shown by 7.8 percent annual growth in the second quarter. By our calculations, that means private investments increased 8 percent in the second quarter, compared with 4 percent in the first. The figures also show strong inventory growth and better export performance than could have been expected based on preliminary GDP data from the EU, especially Germany. Private consumption growth at 3.5 percent is a significant contributor to GDP growth and doesn’t pose any inflation risk. Finally, we can see a slowdown in public-sector demand, which is consistent with our policy of fiscal consolidation.

“The second quarter and the whole first half of the year reinforce our 4 percent GDP growth forecast for this year and provide a solid basis for 2012. I don’t expect any significant revisions to the economic forecasts for the 2012 budget, which the government will confirm by the end of September.

On inflation, output:

“We expect the inflation rate to stabilize at about 4 percent, plus or minus 0.2 percentage point, over the new few months. It should then take a clear dip below 4 percent at the end of the year.

“August industrial output will be a bit higher than in July, though it’s worth noting that the July reading wasn’t weak at all when compared with Western Europe. We can’t expect double-digit output growth anymore because we’re no longer getting a boost from a weak year-earlier base and because of the slowdown on Poland’s main export markets.”

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