The zloty got off to a strong start of the day
on Thursday buoyed by news on the Slovak
central bank intervention the day before but
ran out of steam relatively quickly in the 4.06
EUR/PLN area before retreating to pre
opening levels by mid morning and
eventually ending the day in the red against
both the euro and dollar. S&P’s critical report
on the prospects for zone euro zone
candidates triggered more zloty selling later
in the session. The agency pointed out, that
along with Hungary, Poland could enter the
EMU later than previously thought due to the
widening fiscal deficit and political turmoil.
As we have stressed before in the current
healthy macroeconomic situation a reduction
in the general government deficit to 3.0% of
GDP should not be a major problem over the
coming 2 - 3 years. However, it is worth
remembering that the Polish deficit will
almost certainly be evaluated with the use of
Eurostat’s standards and this means that the
contributions to the open-ended pension
funds will be included in the private sector,
hence increasing the deficit by
approximately 2% of GDP per annum.
Meanwhile, the government’s current
convergence plan targets a drop in the
deficit to GDP ratio to just under 2%
(according to the Polish methodology) in
2008. Therefore, in order for Poland to enter
ERM-2 at the beginning of 2009, it would be
necessary to make an additional fiscal
adjustment of slightly less than 1.0% of
GDP. Even though this does not seem to be
an excessively ambitious task, its
achievement would require political will to
reduce spending and to adopt the euro itself
as quickly as possible and neither of these is
visible in the current political situation. We
believe that the zloty’s road to ERM-2 will
end no earlier than in 2010 and since Poland
would need to remain in this system for at
least two years, this postpones the realistic
date for adopting the euro to 2013.
Fresh speculations on the
resignation of finance minister Zyta Gilowska
appeared in one of the leading daily
newspapers today morning. The paper
suggests that Gilowska could be charged by
prosecutors for the cooperation with the
socialist regime’s secret service, which she
has repeatedly denied in the past. This is
obviously bad news for the already shaken
zloty – the speculations could push the unit
past 4.10 EUR/PLN today, and if confirmed
even further down in the days to come. The
data front is relatively heavy today, with the
retail sales and unemployment numbers at
10:00 GMT and the core inflation figures due
later in the day at 14:00. The stronger thanexpected
wage report and surprisingly
robust May industrial output data suggest
the sales reading will also top the market
consensus of just under 12% y/y. However,
since the largest rise in output took place in
export-linked manufacturing branches the
sales result is unlikely to be equally over the
top. Nonetheless a stronger reading would
be more bad news for the already weak
bond market sentiment and hence also
negative information the zloty.
ČSOB Investment Research