Risk factors Poland

Despite the limited impact of the international credit crisis on domestic
corporate lending conditions in Poland, D&B expects the economy to
slow in 2008.

On one hand, this is due to a moderation of demand for Polish exports, as trading partners’
economies are expected to take a hit in Q2-Q3 2008. Exports are also being affected by the
relentless appreciation of the zloty, which breached PLN3.40:EUR for the first time ever in
mid-May (seven per cent above the year-end 2007 figure), while the strengthening has been
even more pronounced against the US dollar.

On the other hand, domestic Polish conditions point to a slowdown. Most importantly, wages
are growing at double-digit rates: in April the average corporate wage increased by 12.6 per
cent year-on-year. In conjunction with parallel international price drivers, such as energy and
other raw materials, fast wage growth is driving up companies’ operating costs.

We believe this will eventually affect business investment growth. In recent years, gross fixed
capital formation (up 15.6 and 20.4 per cent in 2006 and 2007 respectively) and exports
(which increased by an annual average of 12.0 per cent in 2003-07) have been the main
drivers of Polish economic growth. Hence, the country is bound to feel the slowdown in both
these components of demand. Stronger consumer spending, fuelled by higher wage growth,
will partly compensate for this.

However, as job creation levels off, wage growth will come down, which will halt the house
hold spending boom: we expect this to happen around mid-2009. contribute to the expected
slowdown is the central bank’s monetary tightening campaign. Although the Monetary Policy
Committee held rates steady in late April (for the first time in 2008), it has raised interest
rates seven times since April 2007.

With inflation running at over four per cent y/y (above the central bank’s upper tolerance limit
of 3.5 per cent), further hikes cannot be ruled out. Meanwhile, the rise in inflation could also
delay Poland’s euro entry, as price stability is among the euro accession criteria.

In the past the policy debate around the euro was focused mainly on the budget deficit
criterion, but this is now shifting. The government favours entry in 2011, which would compel
Poland to align the zloty with the euro in 2009 (in a 15 per cent corridor around a central rate).

The government is unlikely to take this step unless it is in a good position to achieve all entry
criteria by 2011, in order to minimise the chances of speculative attacks on the zloty before
the euro is adopted.