Poland Needs Jobs, Markets to Keep Growing, Adviser Says

Poland’s government can’t wait for the central bank to cut rates and must help local companies add new jobs and export markets to maintain economic growth, said an economic adviser to Prime Minister Donald Tusk.

“Poland’s slowdown has reached the stage where decisions have to be taken if we want to avoid a contraction next year,” Malgorzata Starczewska-Krzysztoszek said in an interview in Warsaw today. The nation must “overhaul the labor market to protect jobs and avoid an increase in unemployment; a rate cut isn’t the Polish economy’s biggest need right now.”

The European Union’s biggest eastern economy will outperform the rest of the 27-nation bloc this year, growing 2.7 percent, the European Commission forecasts. Still, that’s slower than last year’s 4.3 percent as Poland feels the impact of the debt crisis in the euro region, where it sells about half of exports.

As concern about the global economy mounts, the government must adjust next year’s budget to assume that growth “probably won’t exceed” 2 percent, Starczewska-Krzysztoszek said.

She urged the government to relax business and labor-market regulations, use more public-private partnerships, introduce special-purpose funds for infrastructure projects and support local companies seeking new markets in China, India, Indonesia and Brazil to reduce dependence on the euro area.

Employment Woes

The zloty traded at 4.0730 per euro at 3:30 p.m. in Warsaw, down from 4.0704 yesterday. The government’s five-year bond yield rose 10 basis points to 4.51 percent.

Polish jobs growth slowed in June to 0.1 percent from a year earlier, the lowest in 25 months. The jobless rate in the nation of 38 million, at between 11.4 percent and 13.5 percent for two years, is forecast by the government to remain at that level through 2013 after having exceeded the record-low rate of 8.8 percent since 2007.

Exports to the euro region fell 1.8 percent in the first five months to 30.2 billion euros ($37.5 billion) and their share among all foreign sales shrank to 53.1 percent from 55.2 percent a year ago, according to the Central Statistical Office.

Poland will revise its 2013 budget draft at the end of this month, Ludwik Kotecki, chief economist at the Finance Ministry, said yesterday. Last week, PAP newswire cited him as saying that the government will continue consolidating finances if economic growth isn’t at risk.

‘Some Overshoot’

“Budget discipline is going to remain a key issue, but the euro area’s deepening debt crisis will force us to be flexible on fiscal consolidation,” Starczewska-Krzysztoszek said. “That means some overshoot of the planned deficit levels for this year and next could be allowed, as long as we stay on track for medium- and long-term targets.”

Poland plans to reduce its deficit to 2.9 percent this year, within the EU ceiling of 3 percent of gross domestic product for the first time since 2007 and down from 5.1 percent last year. The gap was 7.8 percent in 2010 and the government assumes it will shrink to 2.2 percent next year.

No Easing

In addition to fiscal consolidation, the Polish central bank has eschewed easing monetary policy. It became the only central bank in the EU to increase borrowing costs this year when it raised the main rate by a quarter-point in May to 4.75 percent. It had previously left borrowing costs unchanged for almost a year, with inflation exceeding the bank’s target of 2.5 percent since October 2010.

Recent data indicating that an economic slowdown may be worse than forecast has boosted traders’ bets for a reduction in rates this year. Three-month forward-rate agreements fell to 36 basis points below the Warsaw Interbank Offered Rate today, the most since June 2009 and signaling a quarter-point cut in rates by mid-November, according to data compiled by Bloomberg.

“A rate cut would definitely be perceived as business-friendly in the textbook sense of supporting economic activity,” Starczewska-Krzysztoszek said.

Company Plans

Still, 80 percent of Polish small companies and more than half of medium-sized ones don’t plan to borrow, according to a survey of 1,500 firms commissioned by the Polish Confederation of Private Employers and carried out between April and July.

“Since companies aren’t borrowing and a lower benchmark rate wouldn’t necessarily be passed through to loan pricing and availability, the real effect on combating the slowdown would be limited,” Starczewska-Krzysztoszek said. “When Polish entrepreneurs make decisions on capital expenditures and hiring, interest rates are pretty far down their checklist.”

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