Ukrainian Crisis May Hit Polish Economy
April 30, 2014
Political tensions between Ukraine and Russia may have a ripple effect on the Polish economy. Poland’s GDP could grow at a slower rate than expected.
In a report released in April, the Polish Economy Ministry maintained its forecast of 3-percent GDP growth for Poland in 2014. The ministry’s analysts also anticipate that total consumption will increase by 2.3 percent this year, and that personal consumption will grow by 2.5 percent. Sold industrial production is expected to increase by 6 percent, and construction and assembly output is expected to grow by 3.5 percent.
However, the economic crisis in Ukraine may derail this forecast, warns Jan Krzysztof Bielecki, a former Polish prime minister who is now chief economic adviser to Prime Minister Donald Tusk.
According to Bielecki, the Ukrainian crisis may lead to a decrease in Poland’s exports and thus the country’s economic growth may be about 0.3 percentage points lower than expected: at 2.7 percent instead of 3 percent.
Janusz Piechociński, the deputy prime minister and economy minister, says sectors that export heavily to Poland’s regional neighbors to the east may be the most affected. Trade with Russia makes up about 14 percent of Poland’s total foreign trade. Trade with Ukraine, in turn, makes up about 5 percent of Poland’s total trade. The unrest across Poland’s eastern border discourages business partners from using the Polish port of Gdynia.
A decrease in trade and lower investment will cause economic problems. Another unfavorable factor is a strong depreciation of the Ukrainian hryvnia and the Russian ruble.
Jacek Piechota, head of the Polish-Ukrainian Chamber of Commerce, said, “Some new projects have been brought to a halt. Investors remain on standby and are probing the Ukrainian market. Ukraine has a budget problem because the government is dependent on foreign credit.”
EU countries and the United States have decided to impose sanctions against Russia. While Western countries have no cause for concern, Poland has already been affected by a Russian ban on the import of Polish pork.
If tensions rise, Polish companies engaged in trade with Russia or investing and building factories in that country will be hit. Until now, business has been booming. Recent years have seen a significant increase in Polish exports to Russia. According to preliminary data from Poland’s Central Statistical Office, the value of Polish exports to Russia exceeded $25 billion in 2013. That’s over twice as much as a year earlier.
Stanisław Gomułka, chief economist at the Business Center Club (BCC) and former deputy finance minister, told the Money.pl online service that “the negative effect will not be substantial macroeconomically.” However, there are sectors that could face a serious crisis, according to Gomułka. “The industry particularly vulnerable to pressure is trade in food products. The embargo imposed by Russia on Polish meat has caused quite stir in Poland. But a political conflict could also affect other products. It’s enough to say that the total exports of agri-food products to Russia in 2013 increased by more than a fifth to $1.6 billion in comparison with 2012. That makes up over 15 percent of the total value of [Poland’s] exports to Russia,” Gomułka said.
Marek Sawicki, the minister of agriculture and rural development, said that, in the context of the Russian ban on Polish pork, “one should not exaggerate the scale of the problem, although it affects more than 300 processing plants. The value of exports to Russia and Ukraine amounts to 1.7 billion euros, of which 300 million euros is the value of pork exports to the [Eurasian Economic Community] customs union of Russia, Belarus and Kazakhstan, and to Ukraine, Sawicki said.
Russia and the customs union of Russia, Belarus and Kazakhstan are the largest market for EU meat producers. Russia alone is the second biggest market in Europe for EU exporters. EU meat exports to Russia reach 40,000 tons annually. That is why the EU has brought to the World Trade Organization a case against Russia with regard to the ban on the imports of pigs, pork meat and certain pork products from EU countries.
Russia closed its market to the EU at the end of January after four isolated cases of African swine fever (ASF) were uncovered in wild boar in Poland and in Lithuania near the border with Belarus. The ban has exposed the EU farming sector to significant losses and bilateral talks with Moscow have not produced any results as yet. The European Commission said in a statement, “Given that there seems to be no solution forthcoming, the EU has decided to resort to the WTO’s dispute settlement procedures by requesting formal consultations with Russia.”
Alongside the food sector, the electrical engineering industry is also responsible for a substantial part of Poland’s exports to Russia. The value of Polish electrical engineering exports to Russia exceeded $4 billion last year, representing about 40 percent of Poland’s total exports to Russia. Poland also exports many light industry products to Russia, such as clothes, shoes, cosmetics and chemicals. “Unlike in the case of the food industry, it would be difficult for Russia to come up with a reason to impose a trading ban on other products. I wouldn’t expect a trade war between Russia and Poland,” says Gomułka.
Experts point to the other side of the coin: the Russian economy itself is experiencing serious difficulties. Data for the first three quarters of 2013 show that Russia’s GDP growth slowed to 1.3 percent in year-on-year terms, down from 4 percent in 2012. And Russia’s main exports are energy resources, chiefly oil and gas. Last year alone, Poland’s fuel imports from Russia exceeded $25 billion in value terms.