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The Warsaw Voice » Other » November 18, 2009
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Polish Economy Strongest in EU
November 18, 2009 By Andrzej Ratajczyk   
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Poland is coping better than other countries with the fallout of the global financial crisis and is one of the few European nations that may see their economies grow this year. While the EU economy is expected to contract this year by 4.1 percent due to the crisis, Poland is expected to be the only member state to record a positive GDP growth rate of 1.2 percent, the European Commission said in its November report.

Forecasts made several months ago by various financial institutions that had projected a slight drop in Poland's GDP in the second or third quarter did not come true. According to the Central Statistical Office (GUS), Poland's GDP grew by 1.1 percent year on year in the second quarter and 0.8 percent year on year in the first quarter. In the first six months of the year, the GDP grew by 1.0 percent.

Poland fares even better in statistics provided by Eurostat, the EU's statistics office, which publishes seasonally adjusted GDP growth figures. Preliminary data from Eurostat show that in the second quarter the Polish economy grew by 1.4 percent year on year. In the same period, the EU economy contracted by 4.8 percent and the euro-zone economy shrank by 4.7 percent.

Eurostat data shows that Poland was the only EU country to record year-on-year GDP growth. The economies of Lithuania, Latvia and Estonia shrank the most-by 20.4 percent, 18.2 percent and 16.6 percent respectively. Poland's other neighbors also reported sharp drops. The Czech economy contracted by almost 5 percent, Slovakia's by 5.3 percent and Germany's by almost 6 percent.

Ryszard Petru, chief economist at BRE Bank, says the Polish economy will get a second wind around the middle of next year. Polish businesses are less dependent on loans than businesses in other countries because they rely more on their own resources, Petru says. As a result, Polish businesses have been less affected by the constraints on lending since the crisis broke out. As lending is generally lower in Poland, the country has attracted a smaller amount of speculative capital, which at a time of crisis withdraws suddenly, leading markets to decline. Another factor that has helped Poland is a floating exchange rate of the national currency, according to Petru.

The economy is also buoyed by consumer spending because Polish people are still buying a lot. As a result, retail sales are much higher than a year before. Another reason why Poland's situation is relatively good is a small proportion of exports in the GDP. In Poland, this proportion is over 30 percent, compared with 66 percent in the Czech Republic and 69 percent in Hungary.

Slow but sure

There is every indication that the Polish economy will continue to grow. The economy ministry believes that the economic growth rate reached 1.5-1.7 percent in the third quarter and may exceed 2 percent in the fourth quarter. Poland's GDP is expected to grow 1.5 percent in 2009 as a whole.

Experts say the economy may be stimulated by growing household consumption and revived investment, as indicated by encouraging retail sales data and construction and assembly figures. According to the Central Statistical Office (GUS), in September industrial production was only 1.3 percent lower than in September last year and 15 percent higher than in August this year, showing that the worst of the economic slowdown may be over.

EU funds play an important role in stimulating the Polish economy. Of all 27 member states, Poland is the largest beneficiary of the EU's regional policy because it receives around 20 percent of the EU's total financial support under the cohesion policy. In 2007-2013, over 67 billion euros may be transferred to Poland under this policy.

"These are huge funds for investment," says Prof. Danuta Hübner, a Polish Eurodeputy and chairwoman of the European Parliament's Committee on Regional Development. "Supported additionally by money from the Polish budget, these funds will contribute to the development of the Polish economy, infrastructure, and small and medium-sized businesses, especially innovative ones."

As the country's economic performance is improving so are the capital and currency markets. In the first 10 months of the year, the Warsaw Stock Exchange's WIG broad-market index gained almost 40 percent. The Polish currency also strengthened considerably. In early November, the zloty traded at 4.20 to the euro and 2.80 to the dollar, compared with almost 5 and 4 respectively in March.

Projections revised upward

Poland's favorable macroeconomic results, coupled with a revival on the stock market, have helped boost investor confidence. International financial institutions and banks have upgraded their projections for Poland.

In May, the European Commission projected that Poland's GDP would shrink by 1.4 percent this year. According to the Commission's latest projection, Poland will be the only European country with a positive growth rate this year. It is also expected to be the fastest-growing economy among those covered by the Organization for Economic Cooperation and Development (OECD). Australia, which is expected to rank second in this league table, may hope for a mere 0.5 percent, according to the European Commission, while the euro-zone economy is expected to shrink by 4 percent.

At the end of October, the World Bank revised its 2009 growth projection for Poland from 0.5 percent to 1.1 percent. Next year, Poland's economic growth rate will be even higher, according to the World Bank.

"We project that Poland's GDP growth rate will rise to 1.3 percent in 2010," says Kaspar Richter, senior economist at the World Bank. "The rebound will be weaker than in other countries in the region, but it would still be one of the better results. Exports will be the main factor behind the rebound so their competitiveness will be very important."

Economists at Bank of America Corp.-Merrill Lynch & Co. are even more optimistic. In October, they upgraded their growth projections for Poland from 1.1 percent to 1.8 percent this year and from 2.0 percent to 3.5 percent next year. The economists say that the country's economic growth may accelerate to 2 percent in the third quarter and 3 percent in the fourth quarter because the latest economic revival has been stronger than predicted.

Poland popular

Poland has grown more popular with foreign investors, who are attracted by the prospect of the country being one of the few economies in the world with positive growth this year.

The World Investment Prospects Survey 2009-2011 published by the United Nations Conference on Trade and Development (UNCTAD) shows that Poland is one of the most attractive destinations for foreign investment. Poland is the only Central and Eastern European country among the top 15 economies in terms of factors conducive to an inflow of foreign direct investment. Germany, France and Britain won the highest marks among Western European countries.

The overall investment attractiveness of each country was evaluated across 13 categories. In several categories, Poland achieved a high score, far above the global average. Poland won the highest marks for the size of its market and the pace of market expansion. Respondent companies also gave high ratings to the Polish system of investment incentives and access to foreign markets.

Poland and the Czech Republic were the only new EU member states among the top 30 in the league table of the most attractive investment locations. Poland was ranked 11th.

Foreign investors active on the Polish market agree that Poland is an attractive investment location. A poll conducted by the Polish-German Chamber of Industry and Trade shows that 82 percent of foreign investors are satisfied they have chosen Poland as a location for their investment and only 8 percent are dissatisfied. For the first time, foreign companies with operations in Poland have said that Poland is the most attractive country in the world. Among its strengths, those surveyed listed Poland's European Union membership, its qualified and committed work force, strong domestic demand, and stable economy.
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