Poland

WITH a population of about 38m, and a GNI per capita of $13,360, Poland is the largest economy in central Europe and the sixth-largest in the European Union. In 2015, the $425bn economy grew at a faster pace of 3.6pc compared with 3.3pc in 2014, driven mainly by domestic demand that analysts expect will be sustained this year despite external risks.

The growth is nearly twice as fast as the average in the European Union, estimated by the bloc at 1.9pc. Over the year, investments from domestic sources rose by 2.6pc and from external resources by 16.3pc. The volume of housing construction in 2015 increased by 3.9pc.

The economic growth is expected primarily to be driven by strong households’ consumption indicating improved situation in the labour market. GDP is expected to accelerate to about 3.8-3.9pc. According to the National Statistics Committee optimistic forecast, GDP growth in 2016 could make 5.2pc.

According to the World Bank, Poland needs to improve the efficiency of public finances. Despite strong positive forecasts in economic indicators such as unemployment rate, inflation and expected GDP growth, Poland’s economy enters 2016 amid uncertain environment, mainly due to issues facing the European Union as a whole. The economy is extremely dependent on the health of the European Union.

The deficit on public finances will stand at 2.8pc, in line with the government’s estimates included in the budget 2016.

The IMF Executive Board has reported that Poland’s economic growth is strong and unemployment is declining. The economy continues to benefit from its very strong economic fundamentals and policy frameworks. The current account deficit has narrowed, while international reserves remain adequate. Fiscal consolidation has led to an exit from the Excessive Deficit Procedure, and public debt is sustainable. Poland’s credible inflation targeting regime has been effective in managing deflationary pressures, and inflation has started to pick up.

Hungary

THE economy of Hungary is a medium-sized, high-income and open economy in central Europe, and is part of the European Union’s single market. Its economy is growing and unemployment rate is low.

Hungary has made the transition from a centrally planned to a market economy, with a per capita income nearly two-thirds that of the EU-28 average.

Declining exports, reduced domestic consumption and fixed asset accumulation hit Hungary hard during the financial crisis of 2008, making the country enter a severe recession of -6.4pc, one of the worst economic contractions in its history. The economy showed signs of recovery in 2011 with decreasing tax rates and a moderate 1.7pc GDP growth. The policy adjustment between 2011 and 2013 reflects higher revenue collections, mainly higher taxes. Spending restraint and structural reforms also resulted in more savings, while public investment from national resources considerably decreased, notably in the local government sector.

The 2015 budget deficit has fallen to 2pc of GDP and is forecast to decline further in 2017 and 2018. However, Euler Hermes expects the fiscal deficit to remain at around 2.6pc in 2015-2016. Public debt is gradually improving but will still remain above 70pc of GDP.

Monetary policy of the Hungarian National Bank (MNB) is officially based on targeting consumer price inflation. Since 2007, a medium-term inflation target of 3pc has been in place. Over the past three years, the MNB has pursued a steady path of monetary easing, initially to support economic growth and later to fight deflation pressures.

The government deficit is expected to shrink further in 2016 and could reach zero in the foreseeable future, according to the Hungary’s National Economy Minister. The Hungarian economy grew by 2.8-2.9pc last year, driven by higher wages, employment and consumption rather than industry and exports. The Hungarian economy is likely to grow by around 2-2.5pc in 2016.

Hungary could become the favoured destination for investors — central and eastern Europe in 2016 on the back of an expected return to investment grade debt rating and concerns about Poland’s new right-wing government. Over the past year, however, the country has become a more attractive proposition for foreign investment. It has pledged to cut bank taxes from 2016 in an attempt to further boost an improving economy, and analysts expect an upgrade in 2016 in its sovereign debt rating. It runs a big current account surplus and its external debt has declined markedly over the past five years, even though its overall public debt remains stubbornly high.

Hungary did not tap international bond markets in 2015. Instead, it has increased government debt sales to households and local banks as part of ongoing efforts to curb reliance on foreign investors. Some $5.21bn of foreign currency debt expires this year.

However, the government plans to issue yuan-denominated bonds with the support of the National Bank of Poland that could meet Hungary foreign exchange needs in 2016.

Published in Dawn, Business & Finance weekly, February 1st, 2016