Geoff Riley Eton College
Poland Economy
Poland is the largest of the newer members of the European Union and stands as one of the few
countries to have avoided a recession during the global financial crisis and its aftermath. Poland has
achieved a 'soft landing'- a slowdown in activity but which does not result in a recession.
Poland Macro Indicators
2007
2008
2009
2010
2011
Real GDP (% change)
Consumer spending (% change)
Capital investment (% change)
Exports (% change)
Imports (% change)
Unemployment rate (% of the labour force)
Fiscal balance (% of GDP)
Official policy interest rates (per cent)
Consumer price inflation (per cent)
Balance of Payments Current Account (% of GDP)
6.8
4.8
17.3
9.1
13.7
9.6
-1.9
4.8
2.4
-4.7
5.0
5.3
9.7
5.8
6.2
7.1
-3.7
6.3
4.2
-4.8
1.7
2.6
-0.7
-6.0
-13.2
8.2
-6.8
4.3
3.8
-2.2
3.5
2.5
-0.6
11.6
11.7
9.6
-7.9
4.1
2.4
-2.4
4.0
3.0
17.8
5.8
8.4
8.9
-6.7
5.6
2.5
-3.2
Source: OECD World Economic Outlook, data for 2011 is a forecast
Geoff Riley Eton College
How has Poland managed to sustain growth when
much of Europe has been mired in the deepest
downturn for a generation? As always in economics
there is no single answer, instead the explanation
lies in subtle but important differences between
Poland and her neighbours.
1 Private consumption and an emerging middle
class: For all developed countries, private
cosumption is the largest component of
aggregate demand for goods and services. With
a population of nearly 40 million, Poland boasts
a sizable domestic market and this has made
Poland less dependent on exports to Western
Europe. A sizeable middle-class is emerging in
Poland as the country achieves steady
convergence in per capita incomes relative to the
EU average and this now provides the economy
with a core level of demand for household goods,
cars and services with a higher income elasticity
of demand including restaurants, leisure activities,
banking and finance. The consensus is that
Poland managed to avoid the debt-fuelled
property and credit boom of so many other EU
countries during the last ten years with Polish
consumers avoiding the temptation to take out
Euro-denominated personal loans and mortgages
at attractively low interest rates. The absence of a
debt binge meant that Polish commercial banks
were well capitalised and profitable - making them
less fragile and exposed to the global financial
crisis than in neighbouring countries.
2 Exports: Exports account for only 40% of Polish
GDP - far lower than for countries such as the
Czech Republic, Slovakia and Hungary whose
trade integration with the EU is very high. So a
sharp drop in trade within the EU single market in
2009 affected Poland less than others. Over the
medium term, Poland has made impressive
progress is moving away from labour-intensive
export products, indeed the share of researchintensive exports from Poland has increased from
27 percent to 35 percent between 1999 and
2008. Germany is Poland’s largest trade partner
and there are deep connections between German
growth and Polish industrial production and
exports. Poland's export sector is now benefitting
from a strong rebound in German GDP and
exports.
3 A boom in construction and infrastructure
projects: The Polish construction sector has
proved a key to avoiding recession and priming
a rebound in output during 2010. €67bn of
structural funds from the European Union over the
course of the 2007-2012 EU budget cycle have
provided a major injection of demand into the
circular flow and has turned Poland, according to
some commentators, into Europe's largest building
site! Among many infrastructure projects under
way there is a new four-lane highway linking
Germany and the Ukraine which passes straight
through Poland. On the outskirts of Warsaw, a
new bridge is being built across the Vistular River
and EU money is funding regional investment in
Poland's water treatment plants, new bio-mass
plants and a rapid transit system in Krakow. Some
analysts believed that nearly half of the GDP
growth achieved in 2009-2010 can be attributed
to the direct impact and multiplier effects of EU
structural funds. This period of strong investment
has been amplified by money funding stadia and
other infrastructure projects ahead of the
European Soccer Championship finals due to be
held in Poland and the Ukraine in 2012.
4 A more competitive exchange rate: The falling
Zloty in 2008-09 helped to maintain export
competitiveness and provides an interesting
example of how a floating currency can act as
a cushion or a stabiliser when an economy is
affected by external shocks. Poland's central bank
also responded to the European recession and
weaker inflationary pressures by cutting policy
interest rates. And this combination of a lower
currency and interest rates has provided an
important monetary stimulus for Poland - she
does not expect to join the single European
currency in the near future.
5 Improving trade balances: Poland’s trade
balance in goods and services improved
significantly throughout 2009 reflecting improved
competitiveness arising from a lower zloty and a
decline in domestic demand for imports. The
current account deficit in 2009 and 2010
measured as a share of GDP was less than half
what it was in 2007-2008.
Geoff Riley Eton College
6 Return migration: Another boost to the Polish
economy has been the effects of return migration.
After her accession to the EU in May 2004,
hundreds of thousands of mainly younger Poles
left their homeland in search of work in Western
European countries - huge numbers chose the
UK (there were over half a million Polish-born
residents in the UK in the summer of 2010) and,
although many have stayed, rising employment
opportunities and living standards within their
native country have seen a growing number of
Poles return home – this process is likely to
continue.
7 Continued high levels of inward investment:
Counter to a downward spike in global FDI flows,
Poland has managed to maintain high levels of
inward investment in the last few years. The total
value of new foreign direct investment into Poland
in the first half of 2010 exceeded 5 billion Euros
and was 75% higher than a year earlier. Many
high-profile multinationals have invested in the
last couple of years – ranging from Dell
(relocating from Ireland) and Fujitsu and clothing
retailer Hennes & Mauritz (H&M). Just recently
we have seen news stories of production and
jobs moving from the UK to Poland. Kraft has
announced the controversial closure of a
confectionery factory in Bristol with production
moving to a special employment zone. And tea
maker Twinings is closing factories on North
Tyneside and in Hampshire relocating manufacturing
to a new £27million plant in Poland aided by a
£12m EU grant. The EU is investigating whether
some of these business relocations have been
prompted in part by an illegal use of EU structural
funds which are not supposed to cause a
displacement of jobs from one part of the EU to
another.
Geoff Riley Eton College
Poland has not been immune to the recent economic
crisis but we find that Poland’s relatively healthy
macroeconomic outcome during this difficult time
for Europe is the result of flexible macroeconomic
policy-making, timely and important funding from
the EU and a financial system less exposed to the
global financial crisis. Some commentators believe
that Poland is too dependent on EU funding – a
recent OECD report found that Poland is the largest
recipient of EU cohesion funds worth annual
average of 3.3% of GDP – and she must find new
Supporting Charts
sources of investment when a new and less generous
EU budget cycle begins in 2013. But for the moment
Poland seems well placed to continue with a trend
GDP growth of over 4 per cent a year without
unsustainable inflationary pressures. Poland is one
of the major success stories from the ten-country
enlargement of the EU that occurred in 2004 and
2007 and Britain stands to gain – there are
important export and investment opportunities to
be grasped from the sustained growth of the largest
of the new nations to enter the single market.
Geoff Riley Eton College