Poland's Economy Contracts In Q4 2008

Poland is probably sliding into a “technical recession” as the slowdown in its biggest trading partners batters the economy in the largest of the European Union’s eastern members, Citigroup Inc. said.

Poland’s economy probably contracted as much as 0.2 percent in the fourth quarter from the prior three months and will shrink about 0.5 percent this quarter, according to Citigroup’s Warsaw-based economist Piotr Kalisz. The slump may mean the government risks missing its budget-deficit goal of less than 3 percent of gross domestic product, he said.



“The slowdown could be a surprise to the government, which still counts on almost 2 percent economic growth,” Kalisz said. “The Polish government could be forced to revise the budget in mid-2009 and raise the deficit ceiling. However, the government prefers to stick to fiscal discipline rather than fiscal stimulus,” limiting the size of the revision, he added.



Poland’s central bank lowered its key interest rate by three-quarters of a percentage point as slowing economic growth forces companies to cut investments and employment, capping inflation. The Narodowy Bank Polski lowered the seven-day reference rate to 4.25 percent.

“The recent macroeconomic data justify such a scale of reduction as a reaction
to slowing economic growth and waning inflationary pressure,” said Jaroslaw
Janecki, chief economist at Societe Generale in Warsaw. “We expect the end of
the easing cycle in May or June, with the key interest rate at 3.5 percent.”





Barlinek SA, Poland’s largest maker of wooden floors, fell in Warsaw trading after a decline in the zloty caused losses on its hedging transactions.

Barlinek declined 0.06 zloty, or 3.8 percent, to 1.52 zloty, after earlier declining to a record low. The WIG Index rose 0.9 percent.

Kielce, southeast Poland-based Barlinek said its loss on currency deals that will be settled in 2009 and 2010 stood at 51.3 million zloty ($15.6 million) as of Dec. 31. The company recorded a profit of 10.4 million zloty on currency contracts settled in 2008, it said in a regulatory statement yesterday.

Echo Investment SA, a real-estate developer also controlled by investor Michal Solowow and based in Kielce, gained 0.05 zloty, or 2.6 percent, to 1.96, rising for the second time this week and recovering from a 10 percent drop.

Echo had a total loss of 238.6 million zloty on zloty contracts last year, it said in a regulatory statement yesterday. Net income for the year will be at least 100 million zloty because the company increased the value of property on its balance sheet.

“The information” from Echo “is positive for investors, since until now it wasn’t known what type of hedging the company had,” Maciej Wewiorski, an analyst at Dom Maklerski IDMSA, said by phone today. “It’s apparent that the company didn’t speculate on currency moves,” he said, adding that the hedging strategy was “very clear” and it “worked as it should.”

Cersanit SA, Poland’s largest producer of bathroom fittings, also controlled by Solowow, fell 0.3 percent to 9.75 zloty after falling 6 percent yesterday.

The company’s loss on outstanding currency contracts stood at 52.9 million zloty at the end of 2008 and it recorded an 11.7 million-zloty loss on deals settled last year, it said in a regulatory statement after the close of trading yesterday.