S&P Upgrades Polish Government’s Credit Rating
Standard & Poor’s (S&P), one of the three major global credit ratings agencies, raised the rating of Polish debt from BBB+ to A- on October 13. Strong Polish economic growth coupled with fiscal authority that has exceeded expectations fueled this upgrade. S&P stated that a wider-than-expected budget deficit in Poland would not affect payments, in part because of Poland’s floating currency and solid expected growth rates.
Poland’s rating was downgraded in 2016 due to its disapproval of a newly elected populist government led by the Law and Justice Party that it believed would undermine the independence of government agencies. S&P now believes that this will be overshadowed by solid fiscal discipline and economic growth. The current deficit amounts to just under one percent of the country’s GDP, thanks to increases government income from VAT and corporate taxes because of economic success. Poland's Finance Minister Teresa Czerwińska stated that the upgrade reflects the positive reforms under the country’s conservative governance.
On September 27, the lead analyst at Moody’s, another major global credit rating agency, commented to the Polish Press Agency that Poland looks to be resilient against global trade uncertainty and conflict on a report. If the United States placed tariffs on European autos in an act of escalation in the trade war, Poland would handle the crisis better than its peers, although all nations would be negatively affected. Moody’s agreed with the recent downgrade in Poland’s rating by the Worldwide Governance Indicators.
Fitch, the third major credit ratings agency, raised Poland’s projected GDP growth in late September as well. Fitch raised its 2018 growth expectation to 4.8 percent from 4.4 percent and its 2019 expectation to 3.6 percent from 3.4 percent. Government policies boosting consumption have helped preserve high consumption growth, as indicated by retail sales data. The labor market remains strong. Also, investment will keep growth increasing in the second half of the year but will decrease as EU fund growth decreases. This will be followed by a growth reduction and a rate hike cycle in the second half of 2019. Fitch believes this cycle will be caused by labor shortages and a slight weakening in the Zloty, the Polish currency. Fitch assigned Poland an A- rating. It should be noted that of the three agencies, Moody’s rates Poland the most favorably, with a score of A2.
In contrast with the positivity from S&P, the World Bank published its Wholesale Price Index analysis from 2017, an important resource to both Moody’s and Fitch evaluations. While the World Bank did note that Poland has grown more stable, it looked unfavorably on the nation in the other five major categories of its assessment.
Recent reports support these prognostications. The Zloty recently retreated to 4.3 versus the euro. Annual output growth slowed to 2.8 percent from 5 percent in August. This slowdown was confirmed in wage and employment figures. Polish industrial output from September also looked poor. In better news, “Warsaw's blue-chip index rose half a percent, returning to levels last seen before it dropped to three-month lows a week ago as global stocks were plunging.” The World Bank did increase its forecast for economic growth in 2018 to 4.7 percent.