| As the world faces its worst financial crisis in living memory, investors everywhere are looking for safe havens in choppy waters. What will things be like in Poland? Will Poland continue to be a safe and profitable place in which to invest?
The consensus of economists forecast that Poland’s economy will grow by somewhere between 2% and 3% this year – slower than in past years, where 5% to 7% growth has been achieved – but nevertheless a cracking performance by the standards of western Europe, where economies will shrink.
Surely it can’t be that good? Well, there are areas that are facing difficulties. Poland’s banks, three-quarters of which are foreign owned, are dramatically reigning back their lending. There’s precious few new loans being made now, this situation (globally) will change once the banks have all had their balance sheets and accounts for 2008 audited towards the end of Q1. Only then, with a truer picture of their structure of their loan portfolios emerging, will they be able to lend to one another with any degree of trust.
This will be good news to the beleaguered property development sector. Over-supply in the luxury segment (a bubble in its own right, regardless of what was happening abroad) coupled to general difficulties in obtaining loans to finance construction, means that the sector has virtually ground to a halt, especially in high-end residential.
Poland’s automotive sector is hard hit too – especially those who are dependent on export sales. The entire supply chain is hurting. But there are bright spots. Domestic car sales are up (first 11 months of 2008 saw a 9% rise compared to the same period in 2007). Fiat, Poland’s biggest car producer, upped production by 80%, driven by demand for its new 500 model. The Polish used car market also had a boom year in 2008, with more than 1.1 million used cars coming in mainly from Germany. This suggests that at all levels of society, consumer spending has held up well. Shops did a roaring trade before Christmas – the word wyprzedaż (sale) was rarely seen in the windows of Warsaw’s shop – and while the number and value of property transactions has indeed fallen, consumer confidence remains strong.
One reason why Polish consumers were still feeling confident towards the end of 2008 is that throughout last year, unemployment continued to fall. The number of registered unemployed people in Poland’s largest cities is tiny – in Poznań, for instance, only 1.6% of the population is registered as jobless – a mere 5,000 people in a city of 600,000. While unemployment in the UK has been rising, in Poland it’s at its lowest level since 1991.
Compared to other countries in the CEE region, Poland was in sound macroeconomic shape as the world plunged into financial turmoil; this impetus may well be sufficient to carry it over the gulf that’s opening up before the world’s economies. Industrial production in October 2008 in Poland grew faster than in any other EU Member State. Along with Czech Republic, Poland is forecast by the OECD as its least affected members. Indeed, those who remember the last slowdown in Poland (2001-02) can gain some comfort from the OECD’s forecast that this slowdown will be significantly more mild than past Polish economic troughs.
While there has been strong growth in Polish consumer credit and mortgage lending, the level is still very modest by western standards. In 2007, the UK’s combined mortgage debt per capita was €28,760, when in Poland it was a mere €940 – thirty times less. And note that Poland has an even higher owner-occupancy rate (75%) than the UK (70%). These contrasting figures from the European Mortgage Federation show that Poland has not been living beyond its means – Poland’s GDP per capita is $11,000 compared to $46,000 (four times smaller). And between 60% and 70% of Poland’s SME sector is believed to be financed entirely out of its own cash.
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Although average earnings in Poland grew strongly in 2008 (another reason why consumers feel confident), they are still way below UK wage rates. In many Polish provinces, average annual salaries are a little over £7,000. Even in Mazowsze, where Warsaw earnings have pushed up the average, it is just under £11,000.
Those export-dependent manufacturers that have already had to lay off staff found that their former employees were quickly soaked up by other employers, especially in cities like Wroclaw and Krakow.
Where’s the upside? The shift to outsourcing services and business processes to Poland will continue apace, though maybe not to overheated local markets such as Krakow. Those global companies that already have shared service centres or call centres in Poland are growing them, as they trim costs further from more expensive locations in western Europe.
Over the past quarter, the BPCC has seen an increasing number of inquiries from UK companies eager to either trade with or invest in Poland. British CEOs, seeking a market that offers growth and stability at the same time, should take a good, close look at Poland. A pound that’s competitive against the euro (the pound lost nearly 20% in value to the euro in 2008) means that British exporters can compete effectively in Poland against German, French and Italian manufacturers. And Poland’s consumer spending is forecast to remain strong in 2009, even though capital investment will not grow by much, if at all. Britain’s trade performance (in sterling, anyway) with Poland was robust – with exports in the first ten months of 2008 growing at 19% compared to the same period in 2007.
One key reason why Poland will stay afloat economically in coming years will be EU structural and cohesion funds – all €68 billion – which are to be spent by 2015/16 on infrastructure (€28 billion), human resources (€13 billion), innovation (€9 billion), environmental protection, regional development and modernisation of agriculture. This money will change the way Poland looks and functions.
Poland above all needs infrastructure – roads, railways, ports, airports, power stations, water treatment plants, public buildings, and it needs them desperately. The impending Euro2012 football finals will concentrate the minds of Poland’s government centrally and regionally; Poland needs six stadiums, 300 new hotels, 800km of roads, five airport terminals, refurbishment of railways, road infrastructure in six cities, plus new buses, trams and trains. Poland’s public sector is well poised to be a major investment platform – British companies have not yet exploited the new opportunities emerging in this area.
In the light of a global slowdown, UK companies still focused on growth must investigate Poland as a trade and investment opportunity in 2009.
For further information:
Michael Dembinski
British Polish Chamber of Commerce
tel: +48 (0)22 320 0105 / +48 (0)606 969 200
email:
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