Both the European Commission (EC) andthe IMF rated Poland as the fastest-growing country in the European Union for 2010, and forecast high growth in 2011 and 2012. In its updated GDP growth forecasts for 2011 and 2012 – 3.9 and 4.2 percent, respectively – the EC emphasized Poland’s stable banking system, relatively lower share of international trade in thecountry’s GDP structure, positive changes in the labor market and the country’s overall economic policies as factors contributing to Poland’s ability to withstand the worst of the global economic downturn.

Yet Poland’s economic challenge scontinue to proliferate. Since late 2008, Poland was hit by two economic shocks: the recession in high-income countries, which hurt external demand for exports; and the global financial crisis, which reduced capital inflows and lowered domestic demand. As a result, Polish authorities implemented a number of crisis measures, including liquidity support and measures to restore confidence in banks, as well as securing a $20.5 billion precautionary arrangement under the new IMF Flexible Credit Line (FCL) in order to reassure investors, stabilize market fears and enable the country to access credit.

Three areas in particular will have a major effect on Poland’s 2011-2012 economic growth prospects –increasing consumer expenditures fueled by higher job security and workforce participation, continued investment (assuming on-time completion and profitable ROI) from EU structural funds, and the improvement of existing (Germany) and developing (China, India) trade relationships, which should have a positive effect on Polish exports.

Poland’s short-term economic outlook will remain vulnerable, especially as it remains disproportionately tied to the overall economic performance of Europe (including the unfolding euro zone debt crisis).

In addition, ensuring continued convergence with the EU will require major structural reforms (pensions, health care, education, public finances) all of which will require a major financial overhaul. Reducing Poland’s zł.52 billion ($17.2 billion), budget deficit – estimated at 7.9% of GDP (some estimates put it as high as 8.5% of GDP), may take longer than expected, delaying euro adoption well past 2015.

Finally, Poland will take over the EU Presidency from Hungary in mid-2011, along with the agonizing task of overseeing the EU budgetary process for 2014-2020. As larger Western EU member states adopt austerity, the case for increased funding forthe EU’s Central European members will become even more difficult and contentious.

Compared to the rest of the EU, Poland’s economy may have finished ahead of the pack in 2010, but as we get into 2011, the course will get steeper and more demanding. Time will tell if Poland has conditioned itself to go the distance.