Wednesday, 7 December 2011

Public Investment to Fall, Unemployment to Rise

The Polish government has published its revised budget for 2012, which is based upon the premise that economic growth will reach 2.5% next year, down from its previous prediction of 4%. The government also now forecasts that unemployment will increase to 12.3%, whilst earlier it had estimated that it would stand at 10%.

The government hopes that its declared policies of spending cuts and tax rises will help it to meet its aim of bringing the budget deficit to below 3% of GDP and public debt to around 53%. Disturbingly, the government has also announced that public investment - which has so far been the major engine of economic growth in Poland - will be sharply cut next year.

The government estimates that public investment will grow by just 1.5% in 2012. As Poland will be completing its investments for the Euro2012 football championships during the first half of the year, this means that thereafter public investment will be drastically reduced.

This will undoubtedly help instigate an economic slowdown from the second half of 2012, which will have a particularly negative impact on the labour market. Perhaps this is also one of the reasons why the government believes that unemployment will be more than 2% higher than it had previously thought.

Yet Tusk’s administration does not seem to be particularly concerned about this matter and rather accepts it as a fait accompli . While unemployment continues to rise the government has even announced in this budget that the Labour Fund will allocate just ZŁ3.4bn for training and internships. This is half the sum which it spent on this two years ago and less than ZŁ2bn of this will be spent on actually fighting unemployment.

The government has targeted spending cuts and tax rises as a way to bring down its budget deficit and public debt. Although the effects of these policies will not be properly felt until 2013, by reducing public investment and employment spending the government is endangering the country with a sharp economic downturn and a rise in unemployment.

Rather than continuing the economic policies that have been relatively successful in Poland since the outbreak of the economic crisis, the Polish government is bringing the country more into line with the current failed economic orthdoxy that is driving policy throughout the EU. Ironically it is such policies that are likely to actually cause an increase in its debt.

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