Polish Premier Sees Scope for Zloty Gains as Economy Awakens

(Bloomberg) -- Poland’s zloty has room to strengthen as the economy recovers from the coronavirus crisis faster than previously expected, Prime Minister Mateusz Morawiecki said.

While the central bank has repeatedly advocated a weaker currency, Morawiecki said in an interview on Monday that the zloty is “now in a place which is good for the economy.” The Polish currency briefly sank to an 11-year-low against the euro in the early stages of the crisis before regaining most losses.

Morawiecki sounded increasingly upbeat about Poland’s economic performance, saying that the latest indications showed this year’s contraction at around 3.5%, compared with a 4.6% decline envisaged in the budget his cabinet revised in August.

“We’re not concerned with the current level of the zloty at all,” the premier told Bloomberg Television on the sidelines of a forum on foreign-direct investment in Warsaw. “It’s good for the stability of our economy, it’s good for our export industry and at the same time it does have the potential for further strengthening.”

The zloty initially gained on the back of Morawiecki’s comments before giving way to negative sentiment for east European currencies on Tuesday to trade 0.1% weaker at 4.4415 per euro. Since the end of February -- just before the Covid-19 crisis hit Europe -- the zloty has declined 2.6% against the euro.

Relief packages totaling more than 10% of gross domestic product have helped protect companies and kept Poland’s unemployment rate stable. The economy is projected to be one of the best-performing in the European Union during the crisis. While further stimulus isn’t being ruled out, according to Morawiecki, the government is “watching how the economy behaves” before making any decisions.

Global Rethink

Poland, a country of 38 million bordering Germany and Russia, could even gain from a global rethink of supply lines in the wake of the virus crisis as well as growing trade tensions between the U.S. and China, he said.

Firms whose operational models and value chains have been fragmented are set to “discover the beauty of near-shoring” in EU-member Poland, Morawiecki said.

Poland is betting on FDI to help rejuvenate investment and avoid a growth slowdown once the Covid-19 impact fades. Morawiecki said Poland registered 370 greenfield projects in 2019, which will bring $21 billion into the country -- the best result in Europe following the U.K. and Russia. Plans to eliminate taxes on reinvested profits from 2021 will help to lure more companies, he said.

Investors at the conference discussed risks of doing business in Poland ranging from regulatory uncertainty to a lack of openness following the ruling party’s bashing of the LGBT movement.

Morawiecki dismissed the worry, saying that concerns over the rule of law were a “political game” played by Brussels. The EU has repeatedly sued Poland for undermining democracy.

Asked whether rhetoric from his government, which has painted the LGBT community as the enemy of Polish families, may impede investment, he said: “There’s no problem from this point of view whatsoever. Poland is known for its tolerance.”

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