The Polish zloty’s foreign exchange rate has fallen from a three week high against most major currencies and the euro on concern that Poland’s government will miss its target to cut the budget deficit next year.
The zloty declined 0.6 percent to 4.3284 per euro as of 9:43 a.m. in Warsaw, having reached the strongest since Sept. 19 yesterday. The drop pared this month’s gain to 2.1 percent.
The Polish currency surged the most worldwide and bond yields fell yesterday after Prime Minister Donald Tusk looked set to become the first re-elected prime minister since communism ended in 1989. Under his stewardship, Poland was the only European Union economy to keep growing through the global credit crisis, helped by tax cuts and construction projects funded in part by EU aid.
“The market will soon have to start wondering about what the government has to do,” BNP Paribas SA emerging-market strategists including Bartosz Pawlowski in London wrote in an e- mailed note to clients. “Public finances require immediate attention and budget assumptions for the next year are not realistic. This in turn will make the fiscal consolidation even more severe and could result in an even more significant slowdown.”
Poland may fail to make “significant” cuts in the budget deficit next year as economic growth may slow to as low as 1.5 percent, Dariusz Filar, an economic adviser to Prime Minister Tusk, said in an interview yesterday. The government’s goal of reducing the shortfall to 2.9 percent of gross domestic product is “practically impossible” and the euro-region’s economy slowing to “near-zero” growth would limit Polish expansion to between 1.5 percent and 2.5 percent, Filar said.