Abstract
The latest data for February show a EUR525mn current account surplus for
Poland, the first monthly
surplus since September 2006 and the largest
positive outcome since the beginning of the National Bank
of Poland
(NBP)’s data series in 2001. Although monthly balance of payment data is
notoriously volatile
and subject to frequent revision, we nonetheless
believe that, given sustained zloty weakness and the
collapse in consumer
confidence towards the end of Q109, the current account shortfall will
deflate
through 2009. Indeed, we forecast the deficit reaching 3.5% of GDP
in 2009, narrowing further to 0.5%
by 2013.
Leading indicators suggest
that while the Polish economy may have sidestepped recession during the
first
quarter of 2009, the collapse in consumer spending in the following
quarters will likely tip the economy
over the edge by mid-year. Moreover,
though our global outlook projects an economic trough in H109 for
most
developed markets, we believe that the Polish economy will bottom out in
Q209-Q309, and will
enjoy a fairly spritely recovery thereafter.
In
February, the government announced a savings plan worth PLN19.7bn, aimed at
bolstering economic
stability and preventing an escalation in the
government’s external borrowing costs. The majority of the
savings
would come from ‘freezing investments’, said Slawomir Nowak, a top
aide to the Prime Minister.
Among these investments is Poland’s
ongoing force modernisation initiative, which aims to improve
force
compliance with NATO standards. In March 2009, defence minister Bogdan Klich
said that ‘as
regards technical modernisation our funds have been
cut by half’, and that the army technical
modernisation plan is a
‘rather gloomy prospect for 2009’. This contrasts starkly with the
December
announcement that the defence ministry’s investment budget
for 2009 would be the highest since the
dissolution of the Warsaw
Pact.
In January 2009, Polish armed forces ended their long history of
conscription, a significant milestone in
force professionalisation. The
remaining conscripts will complete their nine month service by August.
A
continuing dominant development is Poland’s agreement, on August 20
2008, to allow the US to install
10 interceptor missiles on Polish
territory. The agreement calls for deployment of interceptor missiles in
Poland and an advanced radar station in the Czech Republic. The defences are
designed to protect U.S.
European allies from the threat of long-range
ballistic missiles and are, in particular, aimed at protecting
Europe from
potential attack by Iran. All 26 NATO allies back this deployment, though it
is vehemently
opposed by Russia. The US denies that the missile defence
poses any threat to Russia’s ballistic arsenal,
but their deployment
has strained relations between Poland and Russia. In response, Russia could
make
an ‘asymmetrical response’ by supplying Venezuela with
the superior S-300 air-defence system.
Poland continues its push for
eurozone entry in 2011, despite the deteriorating exchange rates of
eastern
European currencies. Prime Minister Donald Tusk reiterated this
position as recently as March 1 2009 in
Brussels, at an EU summit on the
financial crisis. However, we believe that this accession target is a
little
optimistic, with BMI predicting an adoption date of 2013.
This
quarter, we have introduced a significant new aspect to BMI’s Defence
reports, which is the City
Terrorism Rating (CTR). This assesses the risk
of a terrorist attack. The CTR takes into account the
overall BMI
Terrorism Rating for the country in question. It also incorporates the
‘prevalence’ of
terrorism, which recognises the frequency of
attacks, and whether the city is a target for terrorists. The
CTR also
recognises the ‘threat’ of terrorism in terms of the likely
numbers of victims and the ability of
groups to launch sustained
campaigns. In Poland we assess the CTRs for Warsaw and Krakow. The CTRs
for these cities are both 95.0. In the Central and Eastern European (CEE) and
Central Asian region both
cities rate very highly.
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