How Poland escaped the recession

Eastern Europe was the region "most blighted by the financial crisis", says Lex in the FT. But one country managed to escape recession last year. Having grown by 5% in 2008, Poland managed to expand by another 1.7% last year. How?

One reason for its resilience is its comparatively lowreliance on exports, which comprise 40% of GDP. A flexible currency also helpedtemper the downturn. In addition, Poland "has a huge internal market"of 38 million people, says Monika Kurtek of Bank BPH. Government spending oninfrastructure and strong consumption bolstered domestic demand. Retail salesjumped by 7.2% year-on-year in December.

It helped too that the banking system is in "reasonableshape", says Neal Shearing of Capital Economics. Foreign-currency -denominatedlending is relatively low, tempering the impact of the falling currency onhouseholds and businesses. Banks' funding positions look pretty solid too,given low short-term external debt. Lending to firms may have shrunk, butlending to households has continued to climb.

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A less severe credit crunch, a competitive currency andcomparatively solid domestic demand all mean Poland is likely to keepoutperforming, according to Morgan Stanley. But the bank is not pencilling in aquick rebound to pre-crisis growth rates. Unemployment is still rising, whichmilitates against a big jump in consumption, says Marcin Mrowiec of Bank Pekao.External demand is likely to remain sluggish and the government is planning tocut public spending.

Given all this, the stockmarket, up 33% last year, nowseems set to struggle it still appears to be expecting a sharp earningsrebound. Nor can the market escape the influence of "global investmentsentiment", says the Warsaw Business Journal. A renewed bout of risk aversionas the global recovery disappoints is a danger for all emerging markets. Therewill be better entry points for investors in Poland. Indeed, Shearing thinks theWIG index could fall by up to 10% this year.