Poland faces Moody’s ratings downgrade

As Poland braces for a credit review by Moody’s Investors Service, the only question for economists is how bad the news is going to be.

All but one of the 21 analysts surveyed forecast the company will take negative action later today.

More than half see a downgrade of the sovereign from A2, the fifth-lowest investment grade, where it has been since 2002.

“Political risk looms large in Poland,” said Wolf-Fabian Hungerland, an economist at Berenberg Bank in Hamburg.

“The erosion of democratic checks and balances calls into question the long-term credibility of the nationalist Polish government to service its debt,” he said.

The shine has been off the EU’s biggest eastern economy of 38m people since a new government led by the Law & Justice party swept into power last year.

Markets buckled in January after an unexpected downgrade from S&P, Poland’s first by one of the three major credit assessors, which followed a political standoff at home and a deepening rift with European partners and the US.

Moody’s warned last month that heightening political risks in the country were “ credit negative.”

The government hasn’t received any signals that Moody’s will cut the rating, according to Deputy prime minister Mateusz Morawiecki.

“I don’t know what Moody’s move on Poland will be and I don’t have a reason to assume it will be negative as economic data are positive,” finance minister Pawel Szalamacha said in parliament yesterday.

For the past two years, GDP has expanded faster than 3% each quarter, with growth jumping to 4.3% in the final three months of 2015.

GDP gained at a slower pace in January-March, adding 3.5% from a year earlier, according to a survey.

The government, which took power in November on promises of extra child benefits and higher wages, is putting pressure on public finances with spending increases and plans to lower the retirement age.

Law & Justice has given little ground to critics.

Officials have called S&P’s downgrade “unfair and purely political” and said it overlooked one of the fastest-growing economies in the EU. Last month, Prime Minister Beata Szydlo blamed opposition parties for fuelling a selloff in the zloty.

Also alarming investors are costly pledges to increase tax-free income and convert the equivalent of $36bn (€31.5bn) in Swiss franc-denominated home loans.

The currency will be at 4.4 against the euro at the end of Monday’s trading following Moody’s announcement, according to a survey. The currency is down 3.7% this year, worse than its regional peers including the Romanian leu and Hungary’s forint.