Russian Sanctions Set to Hit Polish Economy
August 29, 2014
Sanctions imposed by Russia may slow Poland’s GDP growth and will also hit Polish farmers and companies in various industries.
A ban introduced in early August by the Russian government on imports of fruit, vegetables, meat, poultry, fish, milk and dairy products from the United States, the European Union and several other countries was Russia’s response to sanctions imposed on it by the West in connection with Russia’s involvement in the conflict in Ukraine. Earlier Russia banned the import of Polish apples.
The Russian embargo is set to deal a heavy blow to the entire European Union, for which Russia was the largest market for food products. In 2013, the EU sold $13.7 billion worth of these products in Russia. The most important food items imported by Russia from the EU last year were cheese and curd, pork, vodkas, liqueurs and other spirits, as well as apples. The largest exporter to Russia in Europe is Germany, which last year shipped $1.83 billion worth of food there. Poland exported $1.55 billion worth of food and produce to Russia.
All the indications are that Poland will be more seriously affected by the Russian embargo than Germany, which has a much larger domestic market. Moreover, in the case of Polish products that were previously shipped to Russia, such as apples, it will be difficult to find consumers at home.
According to the Ministry of Agriculture, in 2013 Poland exported more than 804,000 tons of products from the fruit and vegetable sector to Russia with a value of nearly 336 million euros. The Ministry of Agriculture estimates that the Polish fruit and vegetable sector will lose around 500 million euros as a result of the Russian embargo.
The sanctions imposed by Moscow may also be painful for the Polish dairy industry, which used to ship to the Russian market significant amounts of hard and cottage cheese and other dairy products. Better off are companies in the meat industry, which are already “accustomed” to various restrictions in trade. Previous Russian sanctions were not as painful for meat producers because Poland is also an importer of meat. Domestic demand for meat and meat products meant that the ban was not particularly noticeable.
Rafał Benecki, chief economist at ING Bank ¦l±ski, said that since the Russian embargo covers not only Polish products but also products from all EU countries, it will no longer be possible—as was sometimes the case in the past—to sell Polish food repacked, for example, by German companies, or companies from another EU country. “As a result, in Poland we will be dealing with slower GDP growth on the one hand and falling inflation caused by an oversupply of food on the other,” Benecki told the PAP news agency.
Analysts at BNP Paribas bank also predict a slower rate of growth for the Polish economy. According to Michał Dybuła, chief economist at BNP Paribas, simple calculations show that the Russian embargo may shave 0.4 percent off Poland’s economic growth this year and 0.8 percent next year, mainly due to reduced exports. “Based on the data for Poland’s exports for the period from January to May 2014, we believe that the impact of the sanctions may be less severe than expected because Polish companies have managed to find new markets, partially offsetting the decline in trade with Russia. Nevertheless, the latest reading of the PMI index, which has dropped as a result of lower export orders, suggests that the situation in Russia is exerting a negative impact on the Polish economy,” the bank said in a statement.
The Purchasing Managers Index is an indicator of the economic health of the manufacturing sector. The index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.
BNP Paribas predicts that Poland’s exports will fall by 1.3 percent this year and by 2.6 percent next year. According to the Economy Ministry, in the first half of this year, exports to Russia fell by 7 percent and those to Ukraine declined by 29 percent.
Slower export growth will also have an impact on imports and domestic demand. A worse export environment may also reduce the demand for labor and have a negative effect on household consumption and corporate sector investment.
Experts from EY and Oxford Economics, in their Rapid-Growth Markets Forecast, also point to a threat to the Polish economy stemming from the introduction of sanctions by Russia. Marek Rozkrut, chief economist at EY, said, “One of the main threats to a further acceleration in GDP growth in Poland in 2014 will be disruptions in trade with Russia and Ukraine and a possible new slowdown in the recovery in the eurozone.” According to the EY/Oxford Economics forecast, the Polish economy will grow 3.3 percent this year, followed by 3.4 percent next year and 3.7 percent in 2016.
The sanctions imposed by Russia as well as the protracted Ukrainian-Russian conflict have raised concerns among Polish government officials. According to Deputy Prime Minister and Economy Minister Janusz Piechociński, the Ukrainian-Russian crisis has had an impact on Poland’s economic cooperation with its eastern neighbors. At a recent meeting with Polish businessmen doing business in Ukraine and Russia, Piechociński said, “As the Ministry of the Economy views the situation, the slowdown in Polish exports to Russia and Ukraine is primarily a result of downward trends in the Russian and Ukrainian economies and the weakening of the ruble and the hryvnia. These trends are combined with concerns among Polish businesses resulting from the unpredictability of the further implications of the crisis.”
According to Ilona Antoniszyn-Klik, undersecretary of state at the Economy Ministry, Russia and Ukraine will continue to be a natural export market for Polish companies despite problems resulting from geopolitical factors and the weakening economic condition of Poland’s eastern neighbors. “It is important that Polish companies maintain the position they have attained on the Russian and Ukrainian markets while at the same time looking for opportunities to expand their exports to other markets abroad,” Antoniszyn-Klik said.