Jan Cienski in Warsaw -

Warning lights in the form of persistently high inflation, a wildly fluctuating currency and gloomy industrial production numbers are flashing over the Polish economy - a sign that one of the EU's most resilient economies has not been able to completely disentangle itself from the turmoil in the Eurozone.

Which is not to say that an ugly crash is looming in Poland's near future - by the standards of much of the rest of the EU the economy is still relatively solid. "Poland is a very consumption driven economy, while the rest of the region is export driven - that is what has made Poland an island of stability in central Europe," says Mert Yildiz, emerging market economist with Renaissance Capital.

Nevertheless, there are signs of weakness. Until recently almost every indicator released by Poland's statistical agency tended to surprise on the upside - those sorts of pleasant jolts have become much rarer in recent months.

In March, industrial production slowed to its lowest rate since late 2009 - rising by an annual 0.7%, much lower than most analysts had expected. In a forward-looking indicator, Poland's purchasing manager's index slumped to 49.2% in April - anything below 50 signals the expectation of a slowdown. Retail sales, which kept the economy afloat in 2009, decelerated in March to an annual increase of 10.7%, down from 13.7% in February.

Currency problems

The zloty has also been gyrating wildly, more in response to wider fears over emerging markets, which has investors fleeing the region's largest and most liquid market. The zloty has been reacting much less to domestic factors than to external events - losing value when Hungary engages in a spat with the International Monetary Fund, rising when the European Central Bank flooded banks with liquidity, and falling again during the current crisis over the future of Greece in the Eurozone.

The zloty's recent weakness both hurts and helps. Many exporters are pleased at the windfall. "It's been an extra bonus for us because we had made our calculations at 4.1 to the euro [the currency is now above 4.30 to the euro] so the weakening has helped profits," says Roman Przybylski, sales director of Nowy Styl, a large furniture producer.

But the zloty's weakness has a negative impact on the banking sector. About 700,000 Poles have mortgages denominated in foreign currency - mainly Swiss francs and euros - and a fall in the value of the zloty increases their payments. While the rate for troubled mortgages is still very low at only 2.5%, there are worries that it could rise.

Strapped mortgage holders are also reluctant to spend. Real estate investors worry that retailers will have difficulty making their euro-denominated rent payments if hit both by a slumping zloty and a fall in consumer demand.

The zloty's weakness has also been feeding through in the form of higher prices; making the central bank's job of fighting inflation more difficult. In April prices rose by an annual 4%, far above the bank's target rate of 2.5%. As a result, the bank's interest rate setting Monetary Policy Council (MPC) in May raised its headline rate for the first time in 10 months, increasing it by a quarter point to 4.75%.

The MPC's step aroused a wave of opposition from senior government ministers like Waldemar Pawlak, the deputy prime minister, who called it a "dramatic mistake" and worried that it could endanger Poland's economic growth. "Unfortunately the MPC stabbed a knife into the back of our development prospects," he added.

But despite the signs of weakness and Pawlak's outrage, the Polish economy is still performing better than just about anywhere else in the EU. The European Commission recently updated its growth outlook for 2012, and predicted that Poland would grow by 2.7%, the fastest in the bloc. "Poland has performed even better than expected in the face of a challenging external environment. This has reflected very strong fundamentals, robust domestic demand, and sound macroeconomic management, which helped bolster confidence and sustain access to external financing," said a new report by the International Monetary Fund (IMF).

However, the report went on to note that it was predicting a slowdown in economic expansion. "Risks to the outlook are on the downside, emanating mainly from external sources," said the IMF economists.