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UPDATE 1-Deficit data deal fresh blow to Polish euro hopes

Published 04/22/2009, 05:40 AM
Updated 04/22/2009, 05:56 AM
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(Wraps newsbreaks, adds quotes, background)

By Karolina Slowikowska

WARSAW, April 22 (Reuters) - Poland's ambitious euro adoption plan suffered a major blow on Wednesday when it conceded that the general government deficit exceeded the key 3 percent ceiling in 2008 and will likely do so again in 2009.

Statistics office showed the deficit at 3.9 percent of gross domestic product (GDP), well above the threshold set by the European Union's Maastricht treaty for euro candidates and members and also above a previous government estimate of 2.7 percent.

Deputy Finance Minister Ludwik Kotecki, the government's point man for euro adoption, blamed the spike on slowing economic growth in the fourth quarter but reaffirmed Warsaw's determination to press ahead with its euro preparations.

"Preliminary estimates of the general government deficit point to us exceeding the 3 percent of GDP threshold last year," Kotecki told reporters.

"The situation of the public finance sector should not differ much in 2009 compared to last year," he said, adding that the European Commission might issue a deficit warning to Poland.

Economic growth in Poland, the EU's largest ex-communist state, stood at 2.9 percent in the fourth quarter of 2008, down from 4.8 percent in the previous quarter.

The statistics office revised upward on Wednesday its 2008 growth estimate to 4.9 percent from 4.8 percent. The government has estimated growth of 1.7 percent in 2009 in "the worst case scenario", but analysts say they expect just 0.8 percent.

RECEDING EURO HOPES

The European Central Bank and the European Commission have made clear they will not soften the tough deficit and inflation rules for aspiring euro zone members such as Poland.

"This could mean that if we want to have the euro in 2012 then we would have to move below 3 percent of GDP next year and that would require a big jump in economic growth, which I don't expect," said Jakub Borowski, chief economist at Invest Bank.

"This year I expect growth of 0.1 percent and 1.3 percent next year.To enter the euro zone in 2012, the deficit criterion needs to be met in 2010, which is very unlikely," he said.

The Eurostat data put Poland's general government revenues at 39.2 percent of GDP in 2008, while spending totalled 43.1 percent of GDP in the same period.

Under the centre-right government's euro adoption roadmap, Poland would put its zloty currency into the European Exchange Rate Mechanism (ERM-2) in the first half of 2009 as a prelude to euro adoption in 2012.

However, most economists are sceptical that the government can meet this target, not only because of the economic slowdown and turbulence in financial markets but also due to political opposition in the Polish parliament to the timetable. (Additional reporting by Marcin Goettig) (Writing by Gareth Jones, editing by Andy Bruce)

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