Abstract
Poland's outstanding economic performance has come under strain. Executive Directors stressed the need to strengthen fiscal and monetary policies, and accelerate structural reforms. They considered that the new strategy will strengthen the medium-term economic performance, and place Poland in a strong position to secure accession to the European Union. They commended the soundness of the financial system as reported in the Financial Sector Stability Assessment, and agreed that the country's statistical base is adequate for surveillance.
1. This statement highlights economic and policy developments in Poland since the circulation of the staff report for the Article IV consultation (SM/01/55, February 16, 2001). This additional information does not change the broad thrust of the staff appraisal.
January data confirmed the downward trend in inflation. The 12-month rate of consumer price inflation was 7.4 percent, a decline from 8.5 percent in December. Data necessary for the calculation of core inflation measures in January have not yet been released, but the decline partly reflects falling international oil prices and changes in the seasonality of adjustments of administered prices. Subject to these caveats, the one month seasonally adjusted growth of consumer prices in January was –0.4 percent. The 12-month producer price inflation declined to 4.8 percent in January, from 5.5 percent in December: month on month seasonally adjusted, producer prices fell by 0.4 percent in December. Although the current account deficit rose in January, it remained consistent with the staff’s projection of 5.4 percent of GDP for 2001 as a whole, In January, the current account deficit amounted to US$0.9 billion, about US$70 million more than December 2000. Export growth remained strong, but import growth picked up somewhat from recent months.
Industrial sales remain sluggish, hi January, they were 10 percent higher than a year earlier. However, this reflects a very weak base in January 2000; the seasonally adjusted one month growth rate was 0.5 percent. Enterprise sector employment fell a further 0.3 percent from December, and the registered unemployment rate continued its upward trend, reaching 15.5 percent in January from 15 percent in December 2000.
The State Budget deficit outturn for January was equivalent to 1/5 of the target deficit (excluding receipts from the sale of mobile phone licenses) for 2001. This is considerably higher than accounted for by normal seasonality of spending and revenue, after adjusting for identified one-off factors. The outturn largely reflects non-interest spending above projections, though revenues from indirect taxes were also below target.
2. The Monetary Policy Council (MPC) lowered all official interest rates by 100 basis points with effect from March 1, 2001. It retained its neutral bias. The MPC emphasized declines in headline and core inflation, inflation expectations, the external current account deficit, and in the growth of money and credit in explaining the reductions. But it also noted continued risks in the fiscal area and concerning wages and private consumption. The Zloty strengthened further on the action. Local stock market indices weakened somewhat, partly reflecting trends in international stock markets.
3. The zloty exchange rate has remained strong. Supported by large foreign exchange inflows, the zloty now trades at around 4 per U.S. dollar and 3.7 against the Euro—up 13.7 percent and 8.7 percent respectively from end September 2000.