WARSAW (Thomson Financial) - Poland's second political crisis in a year is unlikely to threaten its ruling conservative cabinet before the autumn, leaving financial markets free to focus on the effects of a booming economy for weeks to come, analysts said today.
Warsaw's stock market and the zloty fell after the sacking of a deputy prime minister yesterday that looked set to deprive the government of a working parliamentary majority and open the door to new elections.
But markets quickly regained a foothold as Prime Minister Jaroslaw Kaczynski promised no decisions would be made before September and analysts said populist party Self-Defence's second departure from government since last September could ease tensions over next year's draft budget.
"The negative reaction was only a short one, and the market should not come under pressure in the medium term," said Jacek Wisniewski, the chief economist at Raiffeisen Bank in Warsaw.
"For the next month and a half parliament is on holiday and the ruling Law and Justice party has time to seek a new majority."
Polish stock markets have boomed this year as the economy surged to decade-high growth of 7.4 pct in the first quarter.
The zloty has also drawn support from two rises in central bank interest rates this year as well as expectations of more to come as price and wage pressures continue to rise.
But markets in general have been disappointed by the conservative-led government, saying it has done little to support competition, reduce red tape or cut back on Poland's relatively high social spending.
They say an election could prove positive for the economy if, as polls suggest, it generated an alliance of the pro-business Civic Platform (PO) party and moderate post-communist Democratic Left Alliance (SLD).
"From the market point of view, Self-Defence's exit from the coalition is not really bad news," said analysts from Bank Zachodni WBK in a note to clients. "The prospect of a new election seems quite likely, although not a done deal."
Poland's constitutional set-up makes it very hard for the opposition to unseat the conservatives without their consent, particularly since Kaczynski's twin brother Lech is the country's president.
But the conservatives say they will not rule as a minority and the party's chances of finding a new majority are likely to depend on convincing at least 28 of Self-Defence's 46 MPs to defect.
In the party's favour is the threat of a new election which polls show could mean many of Self-Defence's MPs losing their seats, and may encourage some to at least support the government in key votes.
Both of Poland's last two governments have stayed in power as minorities for extended periods thanks to support from small groupings unwilling to back a new election that would remove them from parliament.
"Political uncertainty will probably be present for the next few weeks," said analysts from Bank BPH in a morning note. "On the other hand we still have investors playing on strong fundamentals. In the mid-term we look for consolidation."
patrick.graham@thomson.com +48 22 447 2430
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