Set the eagle free

Poland’s slowing economy

A star performer in Europe that should be doing even better

POLAND’S new national stadium is a symbol of optimism. The firm that built it is as German as it is Polish. Germany’s football team is also a symbol: two of its best players are as Polish as they are German. In economics, Poles and Germans get along as never before. Germany benefits from low production costs on its doorstep. Poland gains from German demand and investment. It boasts the fastest growth in the EU: this year, GDP should rise by at least 2.7%.

Yet even in Poland growth is slowing. The euro crisis has hit exports, two-thirds of which go to the euro zone. A weakening euro does not help. Poland’s unemployment is about 13%, around a five-year high. In April the purchasing managers’ index fell. Yet Poles continue to spend freely. Inflation was 4% in April, above the central bank upper limit of 3.5%. In response, the central bank has raised its benchmark interest rate to 4.75%, having held it at 4.5% for ten months. Foreign investors remain keen. Poland (like the Czech Republic) pays less for ten-year government bonds than Italy and Spain (see chart). Jacek Rostowski, the finance minister, hopes to cut the budget deficit to 2.9% of GDP this year; the public debt may fall to 55% of GDP.

Read more: http://www.economist.com/node/21555619