Polish slowdown may boost grey economy - report

WARSAW, March 10 (Reuters) - The slowing Polish economy may push many employees into the black market as companies will search for ways to save on costs, according to Leszek Zienkowski an economist from the Polish Academy of Science (PAN).

Zienkowski estimates that the size of the grey economy could grow by about 25 billion zlotys to 200 billion Polish zlotys ($53 billion) this year.

"The part of the grey economy in GDP production could grow this year to about 16 percent from under 15 percent last year," Zienkowski was quoted as saying in Tuesday's daily Dziennik.

Firms save on hefty social security contributions by hiring in the grey economy, while employees save on tax payments. Recourse to the grey economy is easiest in areas like building and restaurants and is most common among small and medium-sized companies which account for the bulk of Polish jobs.

Zienkowski said the scale of the problem could already be seen in different unemployment measures, posing a threat to already falling budget revenues as growth slows sharply and less cash flows into state coffers.

Monthly unemployment, which measures the percentage of people registered as unemployed, rose to 10.5 percent in January, up from 9.5 percent in December.

At the same time Poland's unemployment rate according to the Labour Force Survey (BAEL) inched up by a mere 0.1 percentage point to 6.7 percent in the fourth quarter of 2008 compared to the third.

Under the BAEL methodology however, people working in the grey economy are not registered as unemployed.

"For sure the grey area will grow and for sure this will mean less budget revenues. It was like this in the previous slowdown and it will be like this now. Like we say, a Pole can," said Grzegorz Maliszewski, chief economist at Bank Millennium.

"Companies try to hire under the table to save money and survive the difficult times."

Poland's economy grew by 4.8 percent in 2008 and is seen growing by 1.2 percent in 2009. (Reporting by Karolina Slowikowska)