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The Warsaw Voice » Business » September 16, 2009
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Still Growing
September 16, 2009 By Andrzej Ratajczyk   
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Poland is now the only European Union economy with positive growth.

Projections suggesting that the Polish economy would shrink slightly in the second quarter have not come true. According to the government's statistics office GUS, the country's GDP grew by 1.1 percent in the second quarter in year-on-year terms, up from 0.8 percent in the first quarter. In the first half of the year, the country's GDP expanded by 1.0 percent.

The results were much better than expected. The economy ministry had projected that the economy would grow by no more than 0.5 percent in the second quarter.

"The socioeconomic data for the second quarter show that Poland has chosen the most effective method in Europe to fight the crisis," said Finance Minister Jacek Rostowski. But in the next breath he added that the good GDP figure for the second quarter does not mean that the crisis is over.

Poland fares even better in seasonally adjusted statistics released by Eurostat. According to the EU's statistical office, the Polish economy grew by 1.4 percent in the second quarter year on year. To compare, the GDP of the EU as a whole contracted by 4.8 percent year on year and the eurozone GDP shrank by 4.7 percent. In quarterly terms, the EU and the eurozone economy contracted by 0.2 percent and 0.1 percent respectively, while the Polish economy grew by 0.5 percent, Eurostat said.

The Eurostat data, released in early September, shows that Poland was the only EU economy to have recorded year-on-year growth in the second quarter. Lithuania, Latvia and Estonia suffered the sharpest falls, at 20.4 percent, 18.2 percent and 16.6 percent respectively. Poland's other neighbors also recorded major declines. The Czech economy contracted by almost 5 percent, the Slovak economy shrank by 5.3 percent, and the German economy declined by nearly 6 percent. In the same period, the United States' GDP contracted by 3.9 percent year on year and that of Japan fell by 6.5 percent. Poland's performance was nowhere near that of China and India, whose GDP grew 7.9 percent and over 5 percent year on year respectively.

"After it turned out that Poland is the only EU country that recorded year-on-year GDP growth in the second quarter, one may expect that Poland's economic growth in all of 2009 will be positive as well," said Prime Minister Donald Tusk. The government has officially projected the country's 2009 GDP growth at 0.2 percent. According to Tusk, the economy is expected to be additionally driven by internal consumption.

According to experts, Poland's relatively good economic performance amid the crisis is due not so much to politicians or the government's anti-crisis packages. The economy has been helped by consumers because they have not stopped buying.

According to GUS data, retail sales in July were 5.7 percent higher than a year earlier. Experts estimate that consumption contributed 1.3 percentage points to GDP growth, while capital formation, including investment demand, declined for the first time since 2003. The drop in investment demand shaved 0.6 percentage points off GDP growth.

Poland is doing better than other countries largely because in Poland exports contribute just over 30 percent to the GDP, compared with 66 percent in the Czech Republic and 69 percent in Hungary.

A weakening of the zloty has also helped the economy. Although the Polish currency has strengthened in recent weeks, it is still more than 25 percent weaker against the euro and over 30 percent weaker against the dollar than in August last year. In February, the zloty was over 50 percent weaker to the euro and over 70 percent weaker to the dollar. As a result of this, imports have been decreasing at a faster rate than exports, which has had a positive impact on the GDP.

According to GUS, in July production was 4.6 percent lower than a year earlier. The sharpest drop was recorded in the mining sector, while the construction market revived. Despite the drop in industrial production, experts say there is no reason to panic because Poland is faring better than other EU countries. In fact, in terms of industrial production, Poland is one of the best performing economies in Europe because many countries have reported over 10 percent declines in production. In July, production in Germany dropped by 19 percent; Slovakia recorded an almost 20 percent drop; Hungary reported 18.8 percent, and the Czech Republic 12.2 percent.

Poland's GDP growth in the second quarter shows that the country is resistant to the global crisis, experts say. Economy ministry officials expect that the country's growth rate will not fall below 1 percent in the third and fourth quarters. This is because household consumption continues to grow and investment is picking up in an encouraging trend reflected by data on retail sales and construction and assembly output.

According to government experts, Poland's economic prospects in the short term will remain strongly dependent on what happens abroad. The credit market and international anti-crisis measures will have an impact on the Polish economy, they say.

According to experts from the Polish Confederation of Private Employers Lewiatan, the latest data show that Polish businesses have managed to withstand the crisis so far.

Paradoxically, their strength lay in their conservatism, including a reluctance to rely on external funding, reluctance to invest aggressively, aversion to change and innovation, a tendency to build competitive position on price, and selling mainly on the Polish market.

However, businesses may soon have to change their approach, Lewiatan says, because the very tactic that helped them weather the crisis may constrain their development once the economy begins to recover.
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