In 2009, Poland was the only European Union state to
maintain economic growth. Now a country that was once a byword
for post-Communist mismanagement and corruption is increasingly
seen as a low-risk market during times of economic
Last years growth of GDP by 1.8% is expected to
accelerate to 3% this year, outpacing anticipated euro-area
growth of 1%, and in the 12 months to March, Polands
industrial output grew by 12.3%. At the same time,
policy-makers see no inflationary threat, and have kept the
benchmark interest rate at a record low of 3.5% for 10 months.
A strengthening currency had reduced inflation to its lowest
rate in almost three years. Unemployment has risen in the past
two years to around 13%, but that contrasts with 20% shortly
before EU accession.
We decided very early on not to introduce a
stimulus and instead rely on automatic stabilizers to do the
work, Polands finance minister Jacek Rostowski told
Emerging Markets in a recent interview. This
strategy worked well for us.
Polands ultimate stress test was arguably the April 10
air crash in Smolensk, Russia, which killed president Lech
Kaczynski, central bank governor Slawomir Skrzypek, the cream
of the nations military elite and senior clergy.
Financial markets remained calm a testament to
confidence in the resilience of the Polish state and also trust
in the buoyancy of its economy.
Yet Polands relative economic stability is as much
down to fortune as shrewd economic policy or foresight.
EU integration has meant that the Polish market has
converged with the rest of the continent, causing export demand
to boom, particularly from Germany. Moreover, the billions of
euros of direct aid injected into the economy since EU
enlargement in 2004 have worked as a multiplier for
That said, Poland remained under-developed in several ways
a fact which has also reduced its exposure to many of
the problems facing more advanced economies. Earlier in the
2000s, motor investment bids were lost to Slovakia and the
Czech Republic, which have since suffered the brunt of the
crash in the auto industry. The financial sector has remained
small compared to the wider economy, and never became
over-dependent on the US and western Europe. Polish high street
banks have remained notoriously risk averse, so mortgage debt
remains about 15% of GDP, compared to around 90% in the UK.
Unlike the Baltic states, Poland failed to bring the Polish
zloty closer to euro convergence. So although the flexible
currency has been on a roller-coaster ride through the crisis,
it has also worked as a shock absorber.
But as Greeces debt woes threaten to spread across the
eurozone, Polish policy-makers arent taking any chances.
Deputy central bank head Witold Kozinski said recently that
Polands euro adoption plan will be delayed further by the
Greek crisis. Although he declined to specify when Poland could
join the single currency, Kozinski said it would enter the euro
But Poland may well place far less emphasis on joining the
euro as a result of the Greek crisis. The lesson we have
learned from Greece is that the euro isnt a medicine that
we should depend on, says Jaroslaw Janecki, chief
economist at Société Générale in
Warsaw. Poland must concentrate on public finances rather
than eurozone entry.
Much uncertainty surrounds the impact of Greeces
crisis on the eurozone and the global economy. But whats
clear is that financial markets are fearful and if the
situation deteriorates, central and eastern Europe will not be
spared the impact. Poland and other currencies in the region
have already been hit hard by a general risk selloff after euro
zone policy-makers warned of contagion if the debt crisis was
not stopped in Greece.
Opinion remains divided on the extent to which contagion
could spread from southern Europe to central Europe. But in a
move to limit potential fallout, Poland moved to extend a $20.5
billion flexible credit line with the IMF, in order to guard
against attacks on the zloty.
PLUGGING THE GAP
But some Polish economists fear the government will use it
as a way to make up the budget deficit, which has ballooned to
7.3% of GDP from 3.7% last year, according to the European
Commission, despite economic growth.
The fiscal deficit should be closer to 3%, and I would
like to know how the finance minister is going to bring it down
to that level, says Wike Groenenberg, head of CEEMEA
(central and eastern Europe, Middle East and Africa) strategy
at Citigroup. That said, some economists in Poland are
too pessimistic about their government; the politicians are
doing relatively well, in difficult circumstances.
Since 2007, Poland has had a centrist, pro-European,
market-orientated government dominated by the Civic Platform
It has performed admirably in steering infrastructure
development in preparation for the Euro 2012 football
tournament, Europes biggest sporting event. This entailed
passing an act of parliament dedicated to ensuring UEFA,
Europes soccer organization, got what it needed: a
solution to Polands perennial red tape barriers,
particularly in the transport and construction sectors.
The government has also pushed forward the privatization
programme. In April, Polands largest insurer, PZU, raised
$2.8 billion in Europes biggest IPO (initial public
offering) for two years. Shares were priced at the top of the
range, and orders from institutional investors were over four
times higher than those offered, according to the government,
which also said capital is fleeing from Greece to Poland.
Indeed, privatization could be the governments ticket
to plug its fiscal gap with up to $10 billion estimated
in the pipeline this year. But there are other reasons to be
hopeful, especially regarding foreign investment. Warsaw has
attracted new offices for Morgan Stanley, Goldman Sachs and
Credit Suisse. And last summer, in the depths of the financial
crisis, Ferrari opened a dealership in Warsaw.
Further long-term opportunities are being created in
Polands petroleum sector. In December, prime ministerial
energy security adviser Maciej Wozniak said Poland could become
a net exporter of gas following technological precedents at
shale fields in the US. Poland has had talks with Marathon,
Chevron and ConocoPhillips about tapping an estimated 1.4
trillion cubic meters of shale gas, which could be worth some
$240 billion overall.
While Hungarian, Ukrainian and the Baltic politicians have
suffered in the polls, Polands government has maintained
its popularity rating of around 50%. The administration has
succeeded in reducing public-sector early retirement costs. It
has demonstrated zero tolerance for sleaze, and jettisoned
ministers associated with a gambling industry scandal.
Meanwhile, the late president Lech Kaczynski, of the
opposition Law and Justice (PiS) party, had become known as
Mr Veto because of the idea that he would
block any radical reform. The PiS are often referred to as
nationalists, but another way to describe them might be as
eurosceptic socialists. They are equally suspicious of a
federal Europe as they are of unbridled free market capitalism.
It is likely that President Kaczynski would have blocked bills
that made life radically harder for Polands working
class, but the government never produced the bills and
it is unlikely to do so until after the 2011 general
Some commentators are sceptical that Polands good
fortune has anything to do with sound leadership by this
government at all.
Krzysztof Rybinski, a professor at the Warsaw School
of Economics and a former deputy governor of the National Bank
of Poland, is scathing. Finance minister [Jacek]
Rostowski allowed for a deficit of over 7% when GDP growth was
close to 2%. It is a clear example of a lack of fiscal
responsibility, he tells Emerging Markets.
The PO has been one of the most anti-reformist
governments in Polish history.
The Polish government is popular because of economic
stability, but also because it hasnt made life hard for
the millions of public-sector employees who will suffer as
Poland modernizes. The government hasnt dared implement
any radical structural reforms, even though it is riding high
on economic stability. Some analysts believe that Rostowski
could be squandering an opportunity a view shared by
In the Polish system of government, power is concentrated in
the hands of the prime minister, who invariably has to form a
coalition government because of the proportional representation
system of elections. The presidency is largely a symbolic role.
But the president selects important officials and also wields a
veto that can block reforms.
After the April 10 Smolensk air disaster, parliamentary
speaker Bronislaw Komorowski automatically became acting
president, in keeping with the Polish constitution. By
coincidence, he is also the PO governments candidate in
presidential elections that were scheduled for the autumn.
These have been brought forward to June 20, when he will face
Jaroslaw Kaczynski the identical twin brother of the
There is a good chance that Komorowski will be
elected, and I see a gradual speeding up of reforms
afterwards, says Groenenberg. Markets will react
positively to such an outcome. Polls indicate that
Komorowski should win easily. He is seen as a reasonable, if
dull, extension of the popular government, and would be
expected to simply rubber-stamp bills backed by prime minister
He would also select a new central bank chief, an issue that
Rybinski at the Warsaw School of Economics says is almost
irrelevant. When Slawomir Skrzypek was appointed he did
not have the proper background and experience, but he proved to
be an efficient administrator, and the National Bank of Poland
did very well under him, he says. A better
cooperation between government and president is welcome
but its not of critical importance.
However, nothing is ever certain in Polish politics, and
voter intention surveys are notoriously unreliable. Rural
conservative church-goers the bedrock of the Law and
Justice party literally walk from Mass to the polling
booths. Civic Platform supporters have disproportionately
failed to vote in the past. Moreover, the investigation into
the Smolensk tragedy continues, and the outpouring of national
sympathy may be of increasing benefit to Kaczynski.
If Kaczynski is elected, it is likely that he will block
structural reforms for the next five years. If Komorowski wins,
it is likely there will be a gradual acceleration of reform,
but none of the necessary (and unpopular) social bills until
after general elections in late 2011.
There may be a reluctance by the government to attempt
too much ahead of the elections in 2011, says
Groenenberg. But if the government gets re-elected, then
the major structural changes should take place, for example in
the agriculture and health sectors.