1. Warsaw, Ministry of Finance October 28, 2009 EU10 Regular Economic Report October 2009

2.  What we have seen –Stabilization  Why Poland is different –Initial conditions, depreciation, market size  What we can expect –Slow recovery  What should be done –Exit strategies and structural reform Overview

3. What we have seen

4. What we have seen Economy – stabilization % change, yoy, nsa Source: Eurostat, World Bank Staff calculations.

5. What we have seen Exports – stabilization 3mma, %change, yoy Source: Eurostat and World Bank.

6. What we have seen Imports – stabilization 3mma, %change, yoy Source: Eurostat and World Bank.

7. What we have seen Industrial production – modest rebound 3mma, wda, %change, yoy Source: Eurostat and World Bank.

8. What we have seen Retail sales – stabilization 3mma, wda, %change, yoy Source: Eurostat and World Bank.

9. What we have seen Inflation – stabilization HICP overall index for EU10 and EU15, annual rate of change, % Source: Eurostat and World Bank.

10. What we have seen Capital flows – strong bond issuance Gross capital inflows to emerging EU10 (US$ billion) Source: World Bank Global Prospect Group, World Bank Staff calculations.

11. What we have seen Stock market – recovery Stock Market Indices (January 2008=100) Source: Reuters, World Bank Staff Calculations

12. What we have seen Sovereign bonds – easing of CDS 5-Year Credit Default Swaps (%) Source: JP Morgan. World Bank Global Prospect Group, World Bank Staff calculations. Source: World Bank Global Prospect Group, World Bank Staff calculations.

13. What we have seen Banks – interbank rates down, spreads persistent Interbank rates (3 months) Source: World Bank Global Prospect Group, World Bank Staff calculations. Interbank rate spreads over Libor

14. What we have seen Parent banks – easing of CDS European Banks’ 5-year CDS (bps) Source: Bloomberg, Datastream, World Bank Staff calculations.

15. What we have seen Credit growth – turning negative Credit growth to non-financial enterprises (%, y-o-y) Source: World Bank Global Prospect Group, World Bank Staff calculations.

16. What we have seen Credit growth – turning negative Non-performing loans in the EU10 in 2009 and Historical Data for Banking and Currency Crisis Countries (in percent of bank loans) Source: IMF, World Bank.

17. What we have seen Labor – wage growth slowing Real wage growth (% change, yoy) Source: Statistical Offices, World Bank Staff calculations

18. What we have seen Labor – unemployment rising slowly only Source: Eurostat, Statistical Offices, World Bank Staff calculations Harmonized unemployment rate (%)

19. What we have seen Labor – … but faster for the young Source: Eurostat, World Bank Staff calculations Change in unemployment rate from June 2008 to June 2009 by age (%)

20. Why Poland is different

21. Why Poland is different Downturn increases with initial macro imbalances GDP growth in 1H 2009 vs. bank-related capital inflows in 2Q 07-1Q 08 Source: IMF, World Bank, DEC PG, World Bank Staff calculations

22. Why Poland is different Large domestic market Exports as % of GDP in 2008 Source: World Bank

23. Why Poland is different Monetary policy – depreciation, modest appreciation Exchange Rates vs. Euro (Aug08 = 100) Source: ECB. World Bank Staff Calculations Real Effective Exchange Rates (Aug08 = 100)

24. What we can expect

25. What we can expect Economy – sentiment improving Economic Sentiment Indicator (long-term mean = 100) Source: European Commission, World Bank Staff Calculations

26. What we can expect Growth – slow recovery EU10, EU15, & Poland - Real Growth 2008 - 2010, (% change, yoy) Source: IIMF WEO, Government Budget 2010, World Bank

27. What should be done

28. Stabilize Financial SectorProtect People Continue with coordinated solutions: crisis requires concerted action Preserve JobsAvoid Backsliding What should be done Economic policy – Address the urgent

29. What should be done Monetary policy – cautious easing to support demand Policy interest rates (percent) Source: Central Banks

30. What should be done Fiscal policy – stimulus spending not an option PensionsPublic wagesNew revenue measures Supplementary budget in 2009 FreezeNo change Freeze (or cut) No change VATDirect TaxOthers BG 2009 N 2010YYY CZ 2009 N 2010YYYYY EE 2009YYYYY Y 2010YYY LV 2009YYYYY Y 2010YYYY LT 2009YYYYY Y 2010YYY HU 2009YYYYY Y 2010YYYY PL 2009YYYY Y 2010YYYY RO 2009YYY Y 2010 SI 2009YYY Y 2010YY SK 2009YYY Y 2010 Y YY Source: EU10 Governments.

31. 31 Declining Population Increasing Population CLIMATE CHANGE ENERGY SECURITY AND EFFICIENCY DEMOGRAPHY GOVERNANCE What should be done Economic policy – … without losing sight of the longer-term agenda

32. THANK YOU!