June 3, 2014
The coming years will be a period of recovery in the Polish economy, according to experts from both Polish and international institutions.
After the release of macroeconomic data for the first quarter, Poland’s Economy Ministry revised upward its forecast for GDP growth this year to 3.3 percent, from a previous 3 percent. This projection is far more optimistic than the 2.5 percent target enshrined in the government’s 2014 budget. The Economy Ministry estimates that Poland’s GDP grew 3.1 percent in the first quarter, accompanied by a 2.2 percent increase in total consumption, and a 2.6 percent rise in private consumption. Gross fixed capital formation increased 3.9 percent, according to preliminary data.
Foreign experts also predict a much faster rate of growth for the Polish economy than previously. William Jackson, an economist with London-based macroeconomic research company Capital Economics, says Poland is capable of mustering 3-4 percent growth a year until the end of the decade. In a recent report, Capital Economics offered a highly optimistic outlook for the Polish economy and listed five reasons that Poland will shine. One of these is economic recovery in the eurozone, which should boost Poland’s export-led industrial sector. Germany, the eurozone’s strongest economy, is Poland’s largest trading partner, accounting for one quarter of its total exports, Capital Economics says.
Investment on the up
According to Jackson, another driver of the Polish economy will be investment, which should grow thanks to improved business sentiment and better conditions on the credit market. The latter are favored by the Polish central bank keeping interest rates low, a policy that the National Bank of Poland should be able to continue for a long time, due to low inflation. Low inflation, combined with falling unemployment on the back of improving economic conditions, will encourage consumer spending. Another source of optimism is that Polish consumers have rebuilt their savings over the past year, which should unblock consumer spending, according to Capital Economics.
Jackson predicts Polish GDP will grow 3.5 percent this year, followed by 3.7 percent next year. The medium-term outlook for the Polish economy also looks good, he says, given the still relatively low level of incomes in Poland and the related potential for catching up with wealthier economies, coupled with Poland’s commercial and financial integration with Western Europe and its appetite for institutional reform. In conclusion, Jackson argues that Polish GDP should grow at a rate of 3-4 percent a year until the end of the decade.
Global auditing and consulting firm Grant Thornton is also convinced that the Polish economy is gradually returning to a path of robust growth. In their Poland: Dynamism at the Heart of Europe report, Grant Thornton experts highlight a growing level of business optimism and an increased number of planned investment projects in Poland.
Grant Thornton predicts that 2014 will see a significant recovery in the Polish economy and the country’s GDP growth will pick up steadily. This will be primarily due to a balance between internal and external demand and low interest rates. According to the report, the improving economic situation in the eurozone will help improve the level of Polish exports and growing domestic demand will contribute to a significant increase in imports.
Grant Thornton says research conducted for the report shows that Polish businesses are planning to increase the number of investment projects in 2014 and expect to increase their sales revenue in the next 12 months. At the same time, almost half the respondents expect an increase in profitability during this period. Forecasts for next year are even more optimistic—all this thanks to a record-high level of business optimism, the highest since 2008 and still rising.
Prof. Waldemar Frąckowiak, an expert on finance and capital markets from the Poznań University of Economics, says the Polish economy is entering the recovery phase of the business cycle. “Due to the underutilization of production potential, Polish companies are prepared to absorb the growth,” says Frąckowiak. “A challenge is an increase in productivity, which has so far been based on launching simple organizational reserves. A further increase in efficiency depends on being able to make major technological progress and increased innovation.”
According to Tomasz Wróblewski, managing partner of Grant Thornton, macroeconomic factors and business sentiment indicate prosperous times ahead for Poland.
Red tape niggles
The Grant Thornton survey shows that bureaucracy is still a key constraint for those doing business in Poland. Nearly half say that unclear regulations will contribute to a slowdown in the development of their business in the next 12 months. Many respondents are also afraid of economic uncertainty, lack of demand and a shortage of funding. Interestingly, fewer companies mentioned poor transport links and poorly developed telecommunications infrastructure as factors constraining development.
Foreign investors are aware of the good prospects for the Polish economy. A survey by the Polish-German Chamber of Industry and Commerce (AHK Poland), carried out together with nine other bilateral chambers of commerce in Poland, shows that Poland is unmatched in Central and Eastern Europe in terms of investment attractiveness. The countries are evaluated on the basis of 21 factors determining the inflow of foreign capital. Poland’s score was 4.76 points out of a maximum 6. The Czech Republic came in second with 4.04 points, and Slovakia was third with 3.84 points.
Ninety-one percent of the surveyed companies expect that their economic condition will not worsen over the next year, and almost 75 percent said they intend to increase their investment expenditure in Poland or leave it at an unchanged level. Poland’s European Union membership is still its biggest asset. The vast majority of respondents highly rate Polish workers as well as their skills, productivity and motivation. As last year, among investment appeal factors, Poland fared worst in terms of the tax system and institutions, public administration, and transparency of the public procurement system.
The upbeat forecasts for the Polish economy are good news, but there are also risks involved. The most serious of these today is the unstable situation beyond Poland’s eastern border. An escalation of the Ukrainian-Russian conflict and further sanctions could hit the Polish economy and Europe as a whole.