Poland ready to shrug off downturn

A Polish flag is seen in Warsaw. File photo: Reuters

A Polish flag is seen in Warsaw. File photo: Reuters

Published Aug 19, 2013

Share

Warsaw - Only months after a stagnant winter marked the end of one of Europe's few recent economic success stories, financial experts are increasingly convinced Poland is mounting a robust recovery.

The question when the European Union's biggest eastern member stalled at the end of 2012 was whether a decade of growth after its entry to the bloc in 2004 had been a one-off honeymoon, or could be repeated.

No doubt Poles are feeling the effect of the slowdown after a rise in joblessness and insecurity. Living standards still trail a long way behind those of their western neighbours, or even the Czech Republic.

But all signs in Warsaw this week are that the conditions are in place for a gradual and sustainable revival.

“The economy is still weak overall but there are green shoots now which we can say are firmly in place,” said Peter Attard Montalto, emerging markets economist with Nomura in London.

Profits and productivity gains had proven easy in the years after EU entry as a population used to low wages, cramped housing and the search for a cheap solution to every problem discovered new ideas like easily available consumer credit.

Millions of Poles headed west to work - far more proportionally than any of their eastern European neighbours - and sent cash pouring back that has bought cars, built houses and bolstered small businesses.

But many wondered how long the credit boom could run as cash-strapped Western banks cut back on funding for subsidiaries; whether Polish firms were capable of investing to compete with bigger companies in Germany and elsewhere; and how long labour costs would remain competitive as wage expectations rose.

The answers on all those fronts are looking positive.

Investment in longer-term and bigger scale projects both public and private has been strong throughout the boom and the results are beginning to show.

Warsaw is finally well connected by road to Germany, the Czech Republic and the country's other major cities and - importantly for a population of 37 million in this year's heat wave - lake, mountain and coastal holiday resorts.

Exports, whose long-term growth slowed after 2008, rose 6 percent in the first six months of 2013 compared to a year earlier, including a rise of 2 percent to other EU countries and some 22 percent to other emerging economies.

Poland's government shied away from cutting as aggressively as some economists demanded in the early days after the 2008 financial crisis, and has now opted to allow this year's budget deficit to widen to help the recovery.

State bank BGK has issued 2.7 billion zlotys ($863 million) of loan guarantees since mid-March, translating into 4.5 billion zlotys of new loans for companies.

With private sector debt among the lowest in Europe at 78 percent of GDP, there is plenty of room left to grow.

“Poland maintains an advantage over the region as the balance sheets of households and firms are improving,” says Goldman Sachs economist Magdalena Polan.

“The problem of foreign exchange mortgages is much less pronounced and we think that a recovery can be sustained with less risk than in more indebted or export-oriented countries of the region, like Hungary.”

Second quarter figures last week showed annual growth accelerated to 0.8 percent and economists and the central bank agree it will improve further in the second half of the year.

But the slow down did not come without costs.

Corporate bankruptcies are up by a third this year to their highest since the financial crisis of 2008 and unemployment is only just showing signs of stabilising at around 13 percent.

Ordinary Poles, used to a steady rise in living standards since the 1990s, are not happy and may well vote out Prime Minister Donald Tusk in a 2015 election. Opinion polls show his party has slipped behind the opposition.

“All anyone seems to want to talk about is crisis. How much longer?” says 63-year old Pawel Sikorski, who runs maintenance on a housing cooperative on Warsaw's poorer eastern half.

“Somehow there always seems to be money for them (bosses), there are bonuses, there are contracts for their friends. Just nothing for the ordinary man from whom they only want more every day.”

Yet it is that ability to swallow lower pay and the still large gap in living standards which is powering Polish companies' competitive strength.

Mid-sized firms and producers of more sophisticated goods are growing, having raised investment by double digit percentages while times were good.

Poznan-based firm Solaris said it sold more buses in Germany last year than any foreign supplier and the third most overall, as well as half of all those bought in Poland.

“We know that sales this year will be higher,” said chief financial officer Zbigniew Wlodarczak.

“The rise (comes from) a combination of high quality and an attractive price, which allows us to place offers that win.” - Reuters

Related Topics: