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Poland: Economic Growth Remains Vigorous

London, 19 December 1996 (RFE/RL) -- A report published today says that economic growth in Poland slowed down marginally this year, but it still remains "vigorous" at a projected five and half percent.

The report is published by the Paris-based Organization for Economic Cooperation and Development as part of a survey of the economic prospects of its 28 member nations.

The report says Poland, one of the first countries in Central and Eastern Europe to embark on the transition to a market economy, is now enjoying its fifth year of healthy growth. Its real gross domestic product (GDP) now well exceeds its pre-transition peak.

The report says GDP growth may have peaked in the first half of 1995, at over 7 percent, slackening to 4 percent earlier this year.

The report says the slowdown was accompanied by a shift from exports to domestic consumption. But household incomes were buoyant, the exchange rate appreciated, and investment remained dynamic.

Unemployment remained high (at 11.6 percent in August, 1996) although it has continued to decline. Inflation, too, was high , reaching 21.6 percent in 1995 before falling to 19.5 percent in October, 1996.

The trade deficit has risen by more than five times over the past year to $5,300 million, reflecting a slowdown in export growth and the surge of imports. Poland's official reserves rose by $17 billion, up 18 percent compared with the end of 1995.

The report says the structure of Poland's economy has changed considerably in the past seven years. The share of services in the economy has risen from 35 to 53 percent, while that of industry and construction has shrunk from 52 to 39 percent.

Agriculture's contribution to GDP has fallen from 13 to 8 percent. But farm employment still represents one quarter of total employment, reflecting low productivity. Other sectors where adjustments still have a long way to go include heavy industry, particularly coal-mining.

What are prospects for the future? The report says the latest output data point to a pick-up of growth in the third quarter of this year. A real GDP expansion in 1996 of five and a half percent is expected.

Beyond this year, output growth can be sustained at about five percent "provided that policies remain sufficiently supply-side friendly and that external demand, particularly in the EU, is strong enough."

Unemployment is projected to decline very gradually. The number of people entering retirement will be partly offset by the arrival on the labor market of large numbers of young people, and the shedding of labor caused by restructuring in agriculture, mining and heavy industry.

The report says the government is likely to overshoot its inflation target. It has announced an end-year target for 1997 of 13 percent, on the way to single digit inflation in 1998. But the OECD Secretariat says, on current policies, these targets will be "slightly exceeded."

In the absence of further real exchange rate appreciation, Poland's rate of import growth is projected to converge towards that of exports in 1997. The current account is expected to show a growing deficit over the next two years. The report concludes: "The institutional framework of a market economy is largely in place, although implementation is occasionally lagging."