1. 11 March 2003 Poland: Nominal and real convergence to the EMU Arkadiusz Krześniak tel. +(48 22) 579 9105

2. Section 1 External Environment

3. 3 Global recovery expected in 2004 GDP and inflation forecasts of the Deutsche Bank No inflation pressures in 2003.

4. Section 2 Determinants of Poland’s economic performance

5. 5 Real interest rates in Poland declined but are still high... Real interest rates in Poland, Germany and USA High interest rate differential is the main determinant of the macro- economic situation of Poland (besides relatively lax fiscal policy)

6. 6 Interest rate differential does not impact the USD/PLN much PLN

7. 7 Interest rate differential has some impact on the EUR/PLN PLN

8. 8 PLN to firm on structural factors, reduced uncertainty, successful EU referendum, and interest rate differential PLN

9. 9 East European currencies tend to appreciate in long-term due to productivity gains (Samuelson- Balassa effect)

10. 10 PLN will be additionally firmed by transfers from the EU in the 2004-2006. Industrial production and GDP

11. Section 3 Nominal convergence

12. 12 Interest rate differentials will be declining at a slow pace in 2003-2004 PLN

13. 13 Policy interest rate in Poland is coverging to that of euro-zone PLN

14. 14 Inflation in Poland is lower than in Germany! Polish and German inflation

15. 15 And is still falling... Polish and German inflation

16. 16 Why did Polish CPI decline by over 1000 bp in 2 years? Determinants of inflation

17. 1717 Why will it continue to be low? Determinants of inflation

18. 18 PLN yield curve is normalising but still has negative slope Slopes of Polish and German yield curves

19. 19 Real effective exchange rate in Poland is appreciating Real Effective Exchange Rates

20. 20 Full convergence has not yet taken place in Poland. Slopes of Polish and German yield curves

21. Section 4 Real convergence

22. 22 Business cycles in Poland and Germany are well correlated. Slopes of Polish and German yield curves

23. 23 Labour productivity growth in Poland is higher than in Germany Slopes of Polish and German yield curves

24. 24 But unemployment rate is much higher... Slopes of Polish and German yield curves

25. 25 Unpleasant unemployment arithmetic ( unemployment growth = change in productivity – GDP growth) Slopes of Polish and German yield curves

26. 26 Poland and UE – real convergence (1)

27. 27 Poland and UE – real convergence (2) Personal disposable income (DI) and GDP per capita – nominal and real

28. 28 Maastricht criteria

29. 29 Poland – exchange rate and interest rate forecasts