1

Performance of the Polish economy

in the days of global economic turbulence

„Mapping the previous 20 years and the next 20 years”

Jan Krzysztof Bielecki,Chairman of the Economic Council to

the Polish PM Donald Tusk

Tel Aviv, December, 2010

2

Map of the presentation

„All about maps”:

-Map of European growth in crisis year of 2009

-Panoramic map (20 years) of how we got there

-Map of the CEE – why you should think countries, not „the region”

-Map of what remains to be done

-How The Economist sees the changes on the map of Europe in the next 5 years

Polish economy is growing even during the time of crisis – in very tough 2009…

Real GDP growth rate

in Europe 2009

(y-o-y change)

EU: - 4,2

Euro area: - 4,1

Source: European Commission

FRA- 2,2

ESP- 3,6

PRT-2,7

IRL- 7,1

GBR- 4,9

BEL- 3,1

NLD - 4,0 DEU

- 5,0LUX - 3,4

CHE- 1,5

ITA- 5,0

NOR- 1,5

SWE- 4,9

DNK- 4,9

FIN- 7,8

EST - 14,1

LVA - 18,0

LTU - 15,0

POL 1,7

CZE - 4,2 SVK -4,7

AUT - 3,6

SVN- 7,8

HUN - 6,3 ROU - 7,1

BGR - 5,0

GRC- 2,0

CYP - 1,7

5

4

PANORAMIC MAP OF HOW WE GOT THERE

5

Poland was the first transition country to exceed its 1989 GDP level

Source: EBRD, Pekao Research

Real GDP (1989=100)

0

20

40

60

80

100

120

140

160

180

200

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

Bulgaria

Estonia

Hungary

Latvia

Lithuania

Poland

Romania

Russia

SlovakRep

6

Following two years of painful reforms, back on the growth track

Source: EBRD Transition Report 2008

7

Key transition indicators suggest Poland scores very close to „best pupils in its class”

Source: EBRD Transition Report 2008* Latvia,Estonia and Croatia were considered more advanced in banking reform...

*

8

Dynamic increase of foreign trade is one of the key drivers of investments and growth

Source: Statistical Office, Pekao Research

0

20

40

60

80

100

120

140

160

1990 1995 2000 2005 2009

Exports Imports

Foreign trade turnover (current prices, bn USD)

9

MAP OF THE CEE – WHY YOU SHOULD THINK BY COUNTRIES AND NOT BY „THE REGION”

10

The crisis was an „acid test” for the growth model of CEE countries…

11

These countries that expanded their budgets too much (often with credit booms) - suffered

12

Poland is less dependent from external conditions than other countries in the region

Source: World Bank

13

Polish banking sector lent mostly in local currency – smaller FX risk

Source: World Bank

14

Polish banking sector has almost balanced loan-to-deposit ratio – less risky than others

Source: World Bank

15

MAP OF WHAT REMAINS TO BE DONE

16

Key challenges for the government - deficits

General government fiscal balance, % of GDP

Source: World Bank

17

Key challenges for the government - debt

General government public debt, % of GDP

Source: World Bank

18

However, indebtedness remains one of the lower ones compared to other EU countries…

Source: World Bank

Debt to GDP ratio

EURO AREA

UE

UK

Sweden

Spain

Slovenia Slovakia (without OPF)

Romania

Portugal

Poland (without OPF)

NL

Malta

Luxembourg

Lithuania

Latvia

Italy

Ireland

Hungary

Greece

Germany

FranceFinnland

Estonia

DennmarkCzech Republic

Cyprus

BulgariaBelgium

Austria

0

2

4

6

8

10

12

14

0 20 40 60 80 100 120 1402010 level (%)

Incr

ease

bet

wee

n 20

10 a

nd 2

009

(in p

p)

19

Lower outstanding public debt……

Public debt as % of GDP126.8

116.0

65.5

76.1 78.473.4

53.2 51.0

38.0 35.3

122.9118.4

98.6

83.3 79.875.4

62.855.4

40 39.1

0

10

20

30

40

50

60

70

80

90

100

110

120

130

Greece Italy Ireland Portugal Hungary Germany Spain Poland Poland exOFE

Czech

2009 2010

Source: for 2009 official data from Eurostat, and for 2010 estimates from official fiscal notifications of the countries

20

……is reflected in lower credit risk

CDS rates

0100200300400500600700800900

10001100

Oct

08

Nov

08De

c 08

Jan

09Fe

b 09

Mar

09

Apr 0

9M

ay 0

9Ju

n 09

Jul 0

9Au

g 09

Sep

09O

ct 0

9No

v 09

Dec

09Ja

n 10

Feb

10M

ar 1

0Ap

r 10

May

10

Jun

10Ju

l 10

Jul 1

0Au

g 10

Sep

10O

ct 1

0No

v 10

pts

Poland Czech Rep. Hungary GreeceSpain Portugal Ireland Italy

Note: CDS rates reflect cost of protection against default of debt issuer

21

yield % spread bp yield % spread bp yield % spread bp

Greece 12.59 1087 11.46 976 10.30 881

Portugal 6.00 428 4.78 308 5.25 376

Hungary 5.75 403 4.75 305 5.25 376

Spain 5.53 381 5.33 363 5.08 359

Ireland 4.55 283 3.39 169 3.36 187

Italy 3.66 194 2.86 116 2.84 135

Poland 3.42 170 2.48 78 2.44 95

YIELD AND SPREAD TO BUNDS (5Y) AT THE END OF A MONTH

November 10 October 10 September 10

yield % spread bp yield % spread bp yield % spread bp

Greece 12.01 933 10.67 815 10.56 826

Ireland 9.42 683 7.10 445 6.64 452

Portugal 7.16 449 6.00 348 6.38 408

Hungary 6.22 354 5.75 323 5.70 339

Spain 5.58 290 4.21 169 4.14 183

Poland 4.81 213 3.93 141 3.97 166

Italy 4.69 202 3.90 138 3.87 156

YIELD AND SPREAD TO BUNDS (10Y) AT THE END OF A MONTH

November 10 October 10 September 10

Note: for every country yields (in %) and spreads to Bunds (in bps) for bonds denominated in euro

…..and cost of debt servicing

22

Key challenges for the government - summary

Ambitious privatization plans –almost 740 enterprises in the next two-three years

Extensive infrastructure building plans (motorways, energy sector), to be boosted with EU funds. Almost 1100km of motorways under construction

Challenge of maintaining fiscal discipline amid economic slowdown, ambitious infrastructure construction plans and the challenge of structural changes in economy and society

23

Key challenges according to the European Commission latest report

- curbing structural deficit

- continuing catching-up process

- securing steady competitiveness gains via continuous upgrade of the export structure

- maintaining macroeconomic stability

Source: European Commision, „Poland – leading the pack in the recovery phase”, May 2010

24

MAP OF EUROPE IN 2015 ?

25Source: „The Economist”, May 2010

Europe in 2015… by „The Economist”

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Thank you for your attention …

27

Enclousers

28

Relatively strong performance of Polish stock market

Stock indices (end 2009=100)

70

80

90

100

110

120

130

Dec

-09

Jan-

10

Feb

-10

Mar

-10

Apr

-10

May

-10

Jun-

10

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Emerging markets World Poland Czech Hungary

29

Net purchases of Polish stocks by foreign investors (PLNm)

-3000

-2000

-1000

0

1000

2000

3000

4000

5000

Jan

06

Jul 0

6

Jan

07

Jul 0

7

Jan

08

Jul 0

8

Jan

09

Jul 0

9

Jan

10

Jul 1

0

Share of foreign investors in holders of Polish treasury securities

10

20

30

Jun

04D

ec 0

4Ju

n 05

Dec

05

Jun

06D

ec 0

6Ju

n 07

Dec

07

Jun

08D

ec 0

8Ju

n 09

Dec

09

Jun

10

50

100

150

% (lhs) PLNbn (rhs)

Poland attracts foreign capital