The big picture for UK and foreign investors interested in Poland. Key macroeconomic indicators updated monthly. [GUS = Główny Urząd Statistyczny – Statistics Poland]
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Commentary
Poland’s economic growth, 3.2% in the year to the second quarter of 2024, surprised analysts and investors positively. Even better was Eurostat’s announcement, in which it assessed Poland as having grown even faster over the same period (4.0%), which has had the effect of forecasters and analysts revising their estimates for 2024 upward.
CPI inflation, which had been as low as 1.9% in March of this year, is plateauing out at 4.3% in August having accelerated to 4.2% by July as the government removed the zero % VAT rate on food (introduced during the pandemic and maintained after the start of Russia’s full-scale invasion of Ukraine); energy prices have likewise lost their consumer subsidy. Inflation is forecast to stabilise at around 5% by year-end.
The draft 2025 budget announced by the Polish government in August triggered a moderately negative reaction from the markets, as the state’s borrowing needs for next year will be some 110 billion złotys higher than 2024. Much of this will be spent on defence and social programmes.
The €76 billion of EU Recovery and Resilience Facility funds will be a major boost to the economy in terms of new renewable-energy and infrastructure projects, although the effect has yet to reach the construction sector, which is still contracting in terms of output, although at a slower pace than earlier in the year. Rising consumer spending, driven by real wages growing twice as fast as inflation, is expected to contribute to GDP growth this year.
The new government, elected last autumn, is seen as more business-friendly, more willing to listen to foreign investors’ concerns, less likely to interfere politically in the markets, and focused on improving the quality and predictability of the legislative process. Questions facing investors in Poland centre around the future of Russian aggression; an end to hostilities would signal a major reconstruction boom in Ukraine, with Poland a natural logistics platform and partner for that process. Another area of uncertainty is the state of Western Europe’s – specifically Germany’s – economic prospects, as Poland’s manufacturing depends heavily on those markets. Trade in goods for the first half of 2024 show Poland with a tiny surplus of €4.6 billion; the value of goods exported falling faster than that of imports. As of the first six months of 2024, the UK is Poland’s only Top Five export market to be growing both in value and in terms of its share in the overall structure of Polish exports. Poland continues to maintain a modest current account surplus.
Demographics and the labour market
Unemployment is likely to stay at or near record low levels; while firms are less likely to be recruiting this year, fewer young Poles will be entering the labour market. Wage pressure is likely to continue as retention of skilled employees continues to be a big worry for firms. Poland’s largest age cohort, born in 1983, will reach the age of 41 this year (around 700,000 people); compare this demographic high-water mark to the number of 21-year-olds, born in 2003 – a mere 350,000. The number of labour-market entrants will continue to fall (280,000 Poles were born in 2023).
Poland’s unemployment is lowest in the cities and highest in rural areas. More than half of the long-term unemployed live in villages. Big disparities exist between cities where unemployment is extremely low (Katowice 1.0%, Poznań 1.1%, Warsaw 1.5%, Wrocław 1.7%, Kraków 2.0%, and Gdańsk 2.5%), and small provincial towns where it remains in double digits. Szydłowiec district, 120km south of Warsaw, also in Mazowsze province, holds the record for Poland at 23.3%. Nearby Radom, a city of 200,000 people, also has high unemployment at 9.5%. New investors might wish to consider university cities such as Łódź (4.5%), Rzeszów (4.1%), Lublin (4.7%) or Kielce (4.5%). All data from July 2024.
The zloty
Although Poland notionally signed up to join the eurozone as part of its EU Accession Treaty, there was no mention of when, or at what rate. To do so, Poland must alter its constitution, which needs a two-thirds parliamentary majority. So Poland continues to linger on the fringes of the EU’s core – and – importantly for its manufactured exports – it can control the competitiveness of its currency. The Brexit referendum resulted in a dramatic fall in value of the pound. From June to October 2016, the pound fell from 5.60zł to 4.80zł, a 14% drop. Since then, it has recovered; fluctuations result more from political turbulence than macroeconomic fundamentals. Over the past month, the zloty/pound rate fluctuated markedly between at 4.98zł and 5.12zł to the pound, as markets digested good macroeconomic news and then the implications of the rising public-sector borrowing needs.
UK-Polish trade
On the surface, Brexit has not hampered trade between Poland and the UK, with 2023 seeing record values of goods and services traded between the two economies. However, UK exports to Poland now include significant sales of fossil fuels substituting those Poland used to buy from Russia. Polish export growth to the UK mainly comes from larger exporters successfully replacing goods from Western European SMEs which no longer trade with the UK because of frictions arising due to the UK’s departure from the single European market and Customs Union. These have made it much harder for small business to trade profitably with a third country.
Links:
GUS (Statistics Poland) English-language pages
Central Bank of Poland English-language pages
Eurostat
