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EU raises Polish 2007 growth forecast on „strong” investments - extended

The European Commission today raised growth forecasts for Poland this year, citing „strong” investments particularly in the construction sector.

Poland's economy will probably expand 6% this year, compared with a November 6 forecast of 4.7%, the commission, the European Union's executive agency, said today in its interim growth forecasts. „Domestic demand will continue to be the main driver of growth, with a key role for robust gross fixed capital formation and strong consumption,” the commission said. The Polish economy grew at the fastest annual pace in nine years in 2006 as record-low interest rates boosted investment and increased hiring pushed up consumer spending. Still, lower external demand will slow the growth rate in the H2 of this year, the report said.

EU Monetary Affairs Commissioner Joaquin Almunia said Poland should not „only rely on the windfall gains coming from a very good recovery” in the economy to improve its public finances. The government „will need to pay attention to structural measures” in order to correct its budget deficit. The EU on February 7 refused to extend a deadline for Poland to narrow its budget deficit within EU limits, rejecting Polish calls to be given another two years. Poland, the largest of the EU members that joined in 2004, has exceeded the deficit limit of 3% of GDP since its accession in 2004 and is expected to stay above the ceiling through 2008, according to EU forecasts. The commission in today's report reduced its inflation forecast for Poland for this year to 2% from 2.5% because lower fuel prices, a stronger zloty and falling import prices are expected to mitigate the effects of planned tax increases and higher wage demands.

Poland's central bank has left the benchmark seven-day reference rate unchanged since cutting it to 4% in February last year. January inflation rose to a 16-month high of 1.7%, the central statistical office reported yesterday, bringing it closer to the bank's target annual rate of 2.5% and prompting speculation that interest rates will be raised soon. Keeping inflation down is one of the conditions for countries to adopt the euro, the currency now shared by 13 EU members. The conditions also include narrowing the budget deficit to below 3% of GDP. Poland, the largest of the EU's eastern European members, has not yet named a target date for adopting the euro. The commission today also released forecasts for the euro area, the 27-nation EU, Germany, the UK, Spain, France, Italy and the Netherlands. Forecasts with a breakdown of all the EU countries will be released on May 7. (Bloomberg)