Economy Picks up Speed
August 1, 2014
The Polish economy is expected to grow at least twice as fast this year as last year. The outlook for the next few years is also optimistic.
According to the latest forecast by the National Bank of Poland, the country’s central bank, Poland’s gross domestic product (GDP) will grow 3.6 percent both this year and next. In 2016, the Polish economy is expected to expand 3.5 percent.
Similar predictions have been offered by the Warsaw-based Institute for Market, Consumption and Business Cycles (IBRKiK), according to which Poland’s GDP will grow 3.4 percent this year, followed by 3.7 percent next year.
“In 2014-2015 domestic demand will take over as the key driver of GDP growth: primarily personal consumption fueled by growing real incomes and investment driven by the expected growth of consumption and exports as well as low interest rates,” the institute said in a report. “In 2015, an additional impulse for growth should come from the already visible multiplier effect.”
According to the World Bank, Poland’s economic growth will pick up to 3.3 percent this year from 1.6 percent last year, and will then reach 3.5 percent in 2015. In December last year, the World Bank expected that Poland’s GDP would grow no more than 2.8 percent this year. Now the bank expects the Polish economy will expand by a healthy 3.8 percent in 2016.
Analysts from other international financial institutions are also optimistic about Poland’s economic performance. A report released by the International Monetary Fund (IMF) in late June says that, after a slowdown in 2012 and 2013, the Polish economy is on track for a lasting recovery. However, the report warns of continued external risks including geopolitical tensions, tighter global financial conditions and slower growth in the 18 European Union member states that use the euro as their common currency. Poland has strong commercial and financial ties with these eurozone economies.
The IMF notes that, after dipping to 1.6 percent last year on the back of a slowdown in key eurozone economies, Poland’s economic growth accelerated to 3.4 percent in the first quarter of this year in year-on-year terms—chiefly due to improved conditions in countries that are Poland’s key trading partners combined with a recovery in domestic demand. The IMF forecasts that the Polish economy will expand by 3.3 percent this year, followed by 3.5 percent next year. In its spring World Economic Outlook report, the IMF predicted that the Polish GDP would grow 3.1 percent in 2014 and 3.3 percent in 2015. According to IMF experts, the unconventional “quantitative easing” monetary policy in the United States—based on a big bond-buying program launched by that country’s Federal Reserve system—has had a limited impact on the Polish financial market so far. Nevertheless, the IMF warns that a further tightening of global financial conditions could lead to an outflow of capital and higher interest rates as could increased geopolitical tensions over Russia and Ukraine.
Despite previous forecasts, overall global growth this year will be lower than 3.6 percent, according to IMF managing director Christine Lagarde. The main reason is lower investment and the still-weak level of economic activity around the world.
The most disappointing is the performance of the European economy. That is why the IMF will revise downward its GDP forecast for the global economy in the near future, Lagarde said in July. The latest IMF forecast published in April suggested global GDP growth would be 3.6 percent this year and 3.9 percent next year.
Analysts from the Standard & Poor’s agency see the potential in the Polish economy. “The risks of an upward or downward revision in a rating or an outlook are balanced, but upgrading a rating or outlook requires further stable economic growth and no growth in fiscal or external risks,” said Marcin Petrykowski, the agency’s regional head for Central and Eastern Europe.
Standard & Poor’s currently rates Poland “A-”, four notches below the cherished “AAA” rating, with a stable outlook. “The fact that Poland maintained its rating along with the outlook during the crisis is proof that the country’s credibility has improved in relative terms. This is due to a combination of three factors: stable economic growth, a flexible monetary policy, and public debt being kept under control. These are the tree main components that we look at,” Petrykowski said.
Standard and Poor’s rates individual countries every six months. The next score for Poland is expected to be issued Aug. 8. S&P analysts say the August assessment of Poland will not be influenced by the upcoming parliamentary elections or by the end of the next stage of the country’s pension reform.
In terms of Ukraine, it is surprising just how little effect the conflict there has had on Poland so far, S&P’s Elliot Hentov said, adding that this effect is smaller than anyone could have expected. Second, the possibility of cutting off gas supplies from Russia remains a certain risk, Hentov said. Even though Poland is less dependent on Russian supplies than Bulgaria, for example, such a move may have some impact on this country, Hentov added.
If stable economic growth continues in Poland, compared with other countries, this may be a factor prompting S&P to upgrade its rating. The question is how soon this will happen. However, there is no precisely specified level that must be achieved, Hentov said. He added that Poland continues to enjoy stable labor costs and a stable exchange rate. The country’s trade balance is improving. However, there is room for greater fiscal consolidation. For a better credit rating, the country’s structural deficit also needs to improve, Hentov said.