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Polish unemployment at 26-year low but politics still weighs on zloty

Poland’s unemployment rate fell to its lowest level since shortly after the end of Communist rule in June, but analysts warned political tensions are likely to outweigh confidence about the economy despite the president vetoing a pair of controversial new laws yesterday.

Unemployment fell from 7.4 per cent to 7.1 per cent – the lowest level since 1991 – when the country’s difficult transition to democracy caused joblessness to surge, having been practically zero until 1990.

Poland’s recent economic strength had helped the zloty rally strongly this year, until protests over controversial judicial reforms last week knocked it off course. Friday was the currency’s worst day against the euro since the day after the Brexit vote last year, and it only managed to claw back a fraction of the losses on Monday.

At publication time the zloty was up a further 0.2 per cent against the euro, but still more than 1 per cent weaker than where it ended last Thursday.

President Andrzej Duda said on Monday he would block two bills put forward by the ruling Law and Justice party (PiS) which could have forced all members of the Supreme Court to step down and give parliament control over the body that appoints judges.

The decision was welcomed by domestic and international critics who feared PiS’ plans would undermine the independence of the judiciary but analysts have warned the controversy is far from over.

Mr Duda on Tuesday approved a bill that gives the justice minister the power to fire the heads of lower courts, and the government is expected to resubmit the two other bills after removing some of the more controversial aspects. If the resubmitted bills received a three-fifths majority in parliament, the president would have no option but to sign them.

ING’s Petr Krpata said “the high likelihood of the new bill being eventually proposed should keep some persistent yet modest risk premium in the [zloty], thus preventing [its] full recovery”.

Tatha Ghose at Commerzbank was sceptical that Mr Duda’s initial veto would be able to move Poland from its collision course with the EU:

The zloty rallied modestly after the president annoucned his veto. But, not by much – EUR-PLN is still trading near the highs of the range it has occupied since Q2. What is more, when viewed relative to peer currencies such as the forint, the zloty has regained only slightly.

Does [Mr Duda] really have the power to shift judicial reforms to an altogether different track, one which would be acceptable to the European Commission? We are sceptical, and the market is right to demand proof.