Poland sports a nearly perfectly balanced economy, but needs to brace for external risks lined up like dominos to pose major challenges to economic policy makers, Monetary Policy Council member Andrzej Rzonca told PAP in an interview.
“We have GDP growth similar to that of potential GDP growth,” Rzonca says of having hit the sweet spot domestically.
It’s an across the board balance in Rzonca’s eyes: loans are growing at the rate of nominal GDP growth and ion line with long-term trends within a financial sector which is “non-excessive” in size. Price growth is below target only on account of supply shocks, while wage growth has done nothing to undermine corporate finances, he says.
However, risks abound abroad, including economic problems in China, risks of currency crises in Latin America, particularly in Brazil, and in Russia, QE-driven speculative bubbles so to pop and possible escalation of Ukrainian-Russian conflict. And, those risks are connected, well arrayed for a domino effect, Rzonca warns.
“If the risk #1 materializes, that is we see further exacerbation of situation in China and spillover effects in Asian economies, then there is scarce chance that other risks will not materialize.”
Escalation of global risks may lead to a new wave of crisis in Europe, which this time could affect euro-zone’s large economies, such as Italy and France, the rate setter said.
To brace for such threats, Poland needs more maneuvering room, also in monetary policy, Rzonca claims.
“We have to expand room for maneuver in domestic macroeconomic policy, including monetary policy,” he said.
“I do believe that the council of the next term will have to face serious challenged caused by very strong external shocks,” Rzonca said. “It should think about normalizing interest rates, so as to avoid situation of being pressed against the wall.”
Eight of the MPC’s nine regular members, including Rzonca, end their term in early 2016, followed by the NBP chief Marek Belka in mid-2016 and a final member in late 2019. President-elect Andrzej Duda will name two of the January 2016 replacements and the successor to NBP chief Belka. The two houses of Parliament, presumably after the autumn elections, will name the other six regular members due for replacement in early 2016.