Poland catches the economic contagion


WARSAW — Just a few months ago, Poland’s leaders were confidently predicting that their country would only be slightly affected by the troubles beginning to roil the U.S. economy.

Now such thinking seems fanciful.

"2009 is going to be a difficult year," said Janusz Jankowiak, a Polish economist.

The finance ministry has revised its prediction of a 4.8 percent growth rate in 2009 to 3.7 percent. But the central bank placed its bet at just 2.8 percent and some economist predict no growth at all.

Poland felt its first effects immediately after the collapse of the U.S. investment bank Lehman Brothers. The zloty began to plunge, following the lead of the Hungarian forint, which was battered as foreign investors began to flee from emerging markets.

Spooked local banks began to tighten lending procedures, making it increasingly difficult for customers to get loans. About 60 percent of Polish mortgages are denominated in Swiss francs, attractive because of their historically lower interest rates, but the zloty's gyrations made banks worried that customers would have trouble repaying their loans.

"We're getting new directives from banks almost every day changing their lending rules. We've had a lot of clients who have been unable to get loans and they've had to walk away from apartments they wanted to buy," said Monika Majewska, who runs Red Point, a Warsaw mortgage brokerage.

With customers unable to borrow, the real estate market, which was already softening, went into a tailspin.

Now many half-built developments in Warsaw's suburbs have ground to a halt and completed buildings are festooned with for-sale banners as investors try to ditch them.

"A lot of the smaller developers are in real trouble," said Tomasz Trzoslo, European director with Jones Lang LaSalle, the real estate agency.

While consumer spending is still relatively strong, the economy is now being hurt by the sharp slowdown in Western Europe, the most important market for Poland's exports, which account for about 40 percent of the economy.

Cars, which make up about 5 percent of gross domestic product, have already been affected. With sales in Western Europe falling off a cliff and the local market too small to make up the difference, car factories have gone on production holidays and have begun to lay off non-staff workers.

"This year was going great until the floor fell out from under the market," said Tony Francavilla, general manager of the General Motors factory in Gliwice in southwestern Poland.
As the big factories slow, many of the smaller car parts suppliers are being squeezed. In the last few weeks several have laid off hundreds of workers.

The government has taken some steps to increase confidence in the banking sector, which remains fairly healthy in comparison to those in Western Europe. But there is only so much this mid-sized economy can do to save itself while the rest of the continent plunges into recession. The government is wary of running up huge deficits in what would likely be a futile attempt to spend itself out of a slump, worrying that doing so would preclude Poland from joining the euro in the near future.

"I am determined that investors, both Polish and foreign, should understand that we shall maintain the health of Polish public finances and that they can trust Poland, and particularly the Polish government as a debtor," said the finance minister, Jacek Rostowski. "I see no advantage in increasing the deficit and just finding that this is chewed up by increased debt service payments."