Boston, MA -- (SBWIRE) -- 10/02/2013 -- Core Views

While we are forecasting relatively robust economic activity over the medium-term, high unemployment and stagnant real wages will continue to weigh on real GDP growth.

Poland's external position remains relatively strong. We forecast the current account deficit to narrow from 4.3% of GDP in 2011 to 2.5% in 2013 as the economic slowdown reduces import demand.

However, a large stock of foreign-owned government paper and ongoing private sector deleveraging represent the two major risks to our sanguine outlook.

We continue to expect the Civic Platform (PO)-led government to serve out its term. The government won a recent parliamentary vote of confidence, suggesting its parliamentary majority is safe for the time being. We also believe that the opposition will struggle to broaden its appeal despite the rising government unpopularity, limiting its ability to challenge the ruling coalition.

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Major Forecast Changes

In light of the disinflationary environment and a sharp deceleration in domestic demand, we have revised down our fiscal deficit projections, which we now expect to arrive at 4.0% in 2013 and 3.6% in 2014. Despite our expectations for Poland to miss the EU's 3.0% of GDP budget target this year, Poland will likely avoid punishment under the exceptional growth clause which permits some leeway on targets due to very low annual growth

Due to weak domestic demand, we have revised our current account forecasts for 2013, and now expect the current account deficit to arrive at 2.5% of GDP from a previous forecast of 3.1%.

Low inflation and slowing growth have paved the way for further monetary easing, and we now forecast 75 basis points of cuts to the base rate in 2013, bringing it to 2.50% by year-end.

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