Poland should cut 2015 GDP outlook on Ukraine worries - Deputy PM

By Marcin Goettig and Pawel Sobczak WARSAW (Reuters) - Poland should downgrade its economic growth outlook for 2015 to take account of fallout from the Ukraine crisis and tit-for-tat sanctions between Russia and the West, Polish Deputy Prime Minister Janusz Piechocinski said. In an interview with Reuters he said Poland's ample gas stocks would enable it to weather any Ukraine-related supply disruption this winter without experiencing shortages. But the conflict in neighbouring Ukraine, where government forces are fighting pro-Russian separatists and NATO says there is a high risk of Russian military intervention, could damage investment by deterring Polish companies from spending, he said. "Every trade 'war', every uncertainty in the economy is particularly costly for both sides," Piechocinski said. "I am a supporter of writing a more cautious forecast into the (2015) budget instead of later revising the budget lower," said the deputy prime minister, who is also the economy minister and leader of the PSL, the junior partner in the centre-right coalition. Piechocinski said that the 2015 draft budget, which is to be sent to parliament by end-September, should assume economic growth at 3.3 percent instead of the current 3.8 percent. The finance ministry has not ruled out revising the assumptions, but no decision has been taken. 'BLACK SCENARIOS' In a decision that will hit Polish producers, Russia last week banned various food imports from the United States and the European Union in response to sanctions imposed earlier by the West. Piechocinski said that if not for the Ukraine crisis, growth in Poland, central and eastern Europe's largest economy, would be much closer to 4 percent this year than the 3.3 percent currently forecast by the government. Polish exports to Russia reached $10.8 billion last year, about 2 percent of Polish GDP. Ten percent of these exports were in goods now banned by Russia. Exports to Russia already fell an annual 10.7 percent in the first half of the year and those to Ukraine – which borders Poland - were down 26.4 percent. Piechocinski said that in a worst-case scenario, Polish exports to Russia could fall by over 20 percent this year and by 40 percent to Ukraine. "Of course we are doing everything so that these black scenarios do not materialise," Piechocinski said. "Hence, we are happy for instance that Kazakhstan and Belarus did not join in (Russia's) sanctions." The two countries are members of a Kremlin-led customs union. Piechocinski would not elaborate on their role, but in theory Polish exports could be shipped to Belarus or Kazakhstan and from there re-exported to Russia, side-stepping Moscow's embargo. "What happens in the east of Poland, this uncertainty, not great results of the European economy - these are signals that force businesses, especially these small and medium-sized ones, to reconsider whether to invest," Piechocinski said. "So one has to take into account that we may return to stagnation in investment," he said. Economists polled by Reuters expect Poland's economic growth to slow to an annual 3.2 percent in the second quarter, with analysts saying that risks are skewed towards a lower reading. The data is due on Thursday. Piechocinski said that his PSL party will propose increasing the proportion of taxpayers' earnings that are free from personal income tax, to stimulate the economy. GAS NEGOTIATIONS Piechocinski said there was no risk of gas shortages in Poland this winter, as the country has record stocks of gas after doubling its storage capacity. Russia halted gas supplies to Ukraine in June because of a row over pricing. Kiev has warned it could impose sanctions on Russian gas transit to Europe. "If the Ukrainian direction were at risk, then the Polish economy would pass safely through the gas crisis from autumn to next spring," Piechocinski said. Poland relies on Russian imports for roughly two-thirds of its annual gas usage of 15 billion cubic metres. But Russia's dominance of the market could be weakened in the future as European states develop shale gas reserves and import liquefied natural gas from other sources. The deputy prime minister said there were grounds to expect that Poland might be able to negotiate lower prices for the gas its state gas company PGNiG buys from Russia's Gazprom. Negotiations are due to start in late autumn. "The gas market has been moving from a supplier market to a consumer market," Piechocinski said. "Now, we are paying one of the highest prices because the advantages have been on the side of (our) partner. "However, we are still building an alternative to Russian gas supplies because, as a good housekeeper, we want to keep our eggs in more than one basket." (Writing by Marcin Goettig; Editing by Mark Trevelyan)