The Polish government might not be especially popular with the markets or with Warsaw’s business elite, and it has unquestionably made a number of policy blunders since it came into power a year and a half ago. However, it is also unquestionable that the Polish government has stuck to a generally conservative fiscal stance. It looks like the public budget for 2008 will reflect this fiscal conservatism.

Yesterday, the news agency Thomson Financial quoted government sources as saying that they will target a budget deficit of PLN 30bn (around 3½% of GDP) for a second year running. Hence, Poland will be close to fulfilling the Maastricht criteria for public finances (a deficit of 3% of GDP and public debt below 60% of GDP). We clearly welcome the Polish government’s continued conservative stance in fiscal policy. In general the budget assumption looks fairly realistic - maybe even conservative - relative to our expectations for the Polish economy. Hence, the Polish government expects GDP growth of 5.7% y/y in 2008. This is pretty close to both consensus and our expectation. The government expects inflation at 2.3% y/y in 2008. This, in our view, is a little optimistic in light of the continued acceleration in wage growth. That said, it is hard to say that these forecasts have been overly “politicised”.

Overall, the continued fiscal conservatism in the budget assumption should not be a big surprise to the market, but we nevertheless welcome it. The interesting thing will be how the minor partners in the coalition government react to the budget assumption. We would particularly expect the populist Sammobrona party to support higher spending.