Oct. 11 (Bloomberg) -- Poland’s zloty retreated from the strongest in three weeks and government bonds fell amid concern the government will miss its target to cut the budget deficit.
The zloty weakened 0.6 percent to 4.3293 per euro as of 4:27 p.m. in Warsaw, paring this month’s gain to 2.1 percent. Bond declines lifted five-year yields by eight basis points, or 0.08 percentage point, to 5.134 percent, according to government bond indexes compiled by Bloomberg.
The Polish currency surged the most worldwide yesterday and bond yields fell after Donald Tusk looked set to become the first re-elected prime minister since communism ended in 1989. Under his stewardship, Poland was the only European Union economy to keep growing through the credit crisis, helped by tax cuts and construction projects funded in part by EU aid.
“The market will soon have to start wondering about what the government has to do,” strategists at BNP Paribas SA led by Bartosz Pawlowski in London wrote in a report to clients. “Public finances require immediate attention and budget assumptions for the next year are not realistic. This in turn will make the fiscal consolidation even more severe and could result in an even more significant slowdown.”
Poland may fail to make “significant” cuts in the budget deficit next year as economic growth may slow to as low as 1.5 percent, Dariusz Filar, an economic adviser to Tusk, said in an interview yesterday. The government’s plan to cut the gap to 2.9 percent of gross domestic product next year is “practically impossible” and the euro-region’s economy slowing could limit Polish growth to between 1.5 percent and 2.5 percent, he said.
The 2.9 percent deficit target “might be out of reach,” Jaime Reusche, an assistant vice president for sovereign risk at Moody’s Investors Service in New York, said yesterday in an e- mailed response to questions from Bloomberg News.
--With assistance from Krystof Chamonikolas in Prague. Editors: Ana Monteiro, Gavin Serkin
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