Background information

With a population of 38 million, Poland is the largest country in Central and Eastern Europe. In 2008, Poland’s share in the gross domestic product (GDP) generated by all new Member States (including Bulgaria and Romania) was more than 40%.

Poland’s accession to the European Union in 2004 was an important milestone in the dynamic development of the country. Approximation of Polish legislation and administration to EU standards, as well as an inflow of structural funds from the Community (approx. 67 billion euro by 2013) provided a major stimulus to economic growth. Poland has taken full advantage of its opportunities and has taken measures to prepare for the challenges of the common European market. The main sectors of Polish economy are services (64% of GDP) and industry (32% of GDP). The remaining 4% of GDP is agriculture.

Stable Demographic situation and increasing affluence of society

Poland is the sixth biggest country in the European Union. In 2008 Poland recorded a positive birth rate and the number of population increased by nearly 20 thousand compared to 2007.

Poland has been successively bridging the gap to the 15 “old” Member States. In 2000, the GDP per one inhabitant was USD 4.473, while in 2008 it increased three-fold to reach USD 13.870. Our country also records a stable increase of consumption expenditure at an average level of 5% per annum.

 

Gross Domestic Product

Owing to stable foundations of the Polish economy, consistent fiscal and monetary policy, no direct involvement in risky sub-prime loans, and low – in comparison with the average EU level – percentage of mortgages taken out by Polish consumers (13% of GDP), Poland enjoyed greater economic stability during the crisis than other EU states. In the first quarter of 2009, Poland’s GDP grew by 1.5%, in the second quarter by 1.3% and in the third quarter by 1% (source: Central Statistical Office). In all three cases, this was the best result among all countries of the European Community.

 

According to the latest data of the Central Statistical Office (GUS) (from 28 January 2010), after eliminating seasonal factors, Poland’s GDP increased 1.7% in 2009 year-over-year (compared to 5.0% in 2008, year-over-year). Early estimates indicate that Poland is the only EU country to record economic growth in 2009.

According to the Economist Intelligence Unit (EIU), Poland may expect economic growth amounting to 2% in 2010 and 2.6% in 2011. Forecasts of Polish economists are even more optimistic, estimating Polish GDP to grow over 2% in 2010.

It is understandable that in the face of the current severe global macroeconomic instability, the economic growth forecasts developed by international institutions vary significantly. However, irrespective of the forecasting institution, Poland is being classified as one of the countries least affected by the economic crisis, not only in Europe but also worldwide.

 

                                                                                        Source: Central Statistical Office of Poland; Eurostat

Direct Foreign Investment

A significant level of direct foreign investment testifies to the confidence that the investors have in Poland as a secure place for doing business. As a confirmation, it is worth quoting the results of the “2008 European Attractiveness Survey” conducted by Ernst & Young among 834 Managers from 41 countries and 5 main sectors of the economy. The question was: what is the best place for investments or development projects. With 18% of the votes, Poland was undisputed first place winner and was ranked above countries such as Germany, Russia or France. Owing to the still relatively low labour costs and highly qualified young workers, Poland is the leader in attracting direct foreign investments. Total investments amounted to EUR 15.7 billion in 2006, EUR 16.7 billion in 2007 and EUR 12.1 billion in 2008. The preliminary forecast for 2009 is between 7 and 10 billion Euro.

The economic downturn reinforced the tendency of global corporations to reduce operational costs. In particular, companies from the business outsourcing sector (BOS) are seeing Poland as a place suitable for doing business. According to the Polish Information and Foreign Investment Agency (PAIZ), the decisive factor why the BOS companies choose Poland as the place for investments is the availability of highly educated and relatively inexpensive professionals with good knowledge of foreign languages.

Strong internal market and stable international trade

Poland is the 6th largest market in the European Union and the 32nd market in the world. It is also the largest market in Central and Eastern Europe. Poland stands out among other countries of the region in that its market is much bigger (38 mln potential customers), more ready and diverse.

Despite unfavourable conditions on global markets, in 2008 Polish economy managed to grow a solid 4.8%, mainly due to internal demand. National demand in the 4th quarter of 2008, compared to the analogous period of 2007, grew by 3.6 % and gross fixed capital formation by 3.5%.

The constantly growing internal demand is stimulated by young, high-earning people entering the market. People born during the baby boom of the early 1980s are now 25-30 years old and create a demand, among others, for goods related to apartments and households, i.e. construction, renovation and decoration services, household appliances, etc. Another positive phenomenon in the Polish society is the long-standing tendency of the Polish citizens to become more prosperous, thus resulting in a general improvement of the status of Polish households.

During the five years since Poland’s accession to the European Union, Poland consolidated its position on the European market and reinforced trade relations with its EU partners. During that period, nearly 80% of Polish export was directed each year to the EU market which also accounted for between 60 and 70% of Polish imports. Therefore, stable export of goods to EU countries and a strong internal market give a true picture of the Polish economy which is more resilient to global economic turmoil than the economies of most of the European countries. In times of prosperity, the driving force behind the Polish economy was the export market. Now, however, amid the worldwide economic downturn, it is based primarily on strong internal market.

Polish labour market

One of the greatest advantages of the Polish labour market is the large number of young, educated and experienced workforce. According to the data published by the Polish Central Statistical Office (GUS), the official unemployment rate in Poland in January 2005 was 20%, to drop to only 10.5% by January 2009.

For comparison, below is the harmonised unemployment rate calculated in accordance with Eurostat methodology.

 

 

Consistent and effective monetary and fiscal policy

As illustrated by the below chart, Poland has managed to maintain low and stable inflation, comparable with the Euro Area. Worthy of notice is that several countries from the same region have not been equally successful in controlling inflation. Moreover, Lithuania, Latvia, Estonia and Bulgaria are struggling with double digit inflation.

The National Bank of Poland (NBP) reference rate has been fixed at 3.75% since March 2009. Inflation in April 2009 was 4% compared with the same period in the previous year.

Since EU accession, Poland has placed a strong emphasis on reducing its budget deficit. In 2007, government deficit reached 2% of GDP compared with 3.8% and 6.3% in 2006 and 2003 respectively. The 2008 budget deficit was 3.9% of GDP. As one of the very few countries in Central and Eastern Europe, Poland has managed to continuously increase its budget revenues with a parallel decrease in budgetary spending.

Key stimuli for the growth of Polish economy in the coming years

In the next few years, the condition of the Polish economy will be influenced primarily by the economic situation in and outside Europe. However, there is a number of factors which are likely to reduce the impact of the global economic crisis on the Polish economy. They will also put Poland in a favourable light not only among the countries of the region, but also within a broader European context.

One of such factors is the inflow of EU funds. By 2013, the total amount of EU fudging in Poland may reach EUR 67 billion. This money will be spent on improving infrastructure, education, etc. Additionally, the Polish economy and the domestic demand still benefits from the reduced maximum income tax rate (from 40% to 32%).

In 2012, Poland will co-host, with Ukraine, the UEFA 2012 European Football Championship. It is another significant stimulus for the country’s economy. Considering its scope and international significance, Euro 2012 will accelerate the construction and modernisation of transport infrastructure and attract thousands of football supporters, creating opportunities for local hotels, restaurants and the tourist industry as a whole.
The National Bank of Poland (NBP) reference rate has been fixed at 3.75% since March 2009. Inflation in April 2009 was 4% compared with the same period in the previous year.

Since EU accession, Poland has placed a strong emphasis on reducing its budget deficit. In 2007, government deficit reached 2% of GDP compared with 3.8% and 6.3% in 2006 and 2003 respectively. The 2008 budget deficit was 3.9% of GDP. As one of the very few countries in Central and Eastern Europe, Poland has managed to continuously increase its budget revenues with a parallel decrease in budgetary spending.