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The Warsaw Voice » Business » November 28, 2013
Business & Economy
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No Time to Bask in Glory
November 28, 2013   
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Poland’s transformation from a centrally planned to a market economy proved to be a tremendous success.

Poland not only massively outperformed its peers in terms of GDP growth, but has enjoyed relatively stable expansion and avoided recession in any single year for the last two decades. Nevertheless, there is no time for basking in glory. Poland, despite astonishing progress, remains relatively poor so the mission of turning the country into a prosperous land is far from completed. So it’s fair to ask what needs to be done to secure robust and sustainable growth? It’s crucial to understand the nature of challenges down the road and address them in the right way.

Looking into the future one might be quite upbeat about the mid-term prospects of the Polish economy unless we see an acute relapse of the debt crisis in the eurozone. Poland will be enjoying a generous inflow of EU cohesion funds for another seven years, which, in tandem with public spending, will give a boost to output. But when we take a look further down the road we will realize that the long-term prospects are much less clear because the sources of the current economic expansion will start waning at some point.

The inconvenient truth that capital is limited must be eventually understood and accepted. This simple fact is often neglected because we were spoiled by the debt supercycle for three decades prior to the outbreak of the latest financial crisis. Even after Lehman’s collapse, despite the initial fear, capital continued to flow to emerging markets on the back of an ultra-loose monetary policy pursued by major central banks. But it’s impossible to continue this policy forever. Hence, in the years to come it will be extremely important to allocate capital in an optimal way to squeeze as much as possible out of the invested resources. We should keep in mind that, in terms of statistics, capital investment contributes to GDP regardless of whether the funds are spent stupidly or wisely. But in the former case the impact is short lived, while in the latter it positively influences the economy for years.

Long-term investments are essential for economic growth, especially in countries with unfavorable demographics. It’s worth noting that Poland’s GDP growth has been predominantly driven by capital investments and rising productivity as the working-age population kept shrinking. The improving efficiency of the economy is of paramount importance in going forward. Investments should encompass both tangible assets (infrastructure) and intangible ones (such as education and R&D) that boost innovation and competitiveness. Poland must ascend the value-added chain and increase the importance of knowledge-intensive industries to avoid “the middle income trap,” which means getting stuck at levels of per capita income well below those achieved in developed economies.

Mariusz Adamiak, CFA PKO Bank Polski
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