Macroeconomic overview, end-October 2024

The big picture for UK and foreign investors interested in Poland. Key macroeconomic indicators updated monthly.  [GUS = Główny Urząd Statistyczny – Statistics Poland]

Commentary

With GDP growing by 3.2% in the year to Q2 2024 and the World Bank forecasting 3.2% growth across the whole of 2024, one has to ask – where is the growth? Industrial production, construction output, and retail sales all contracted in the year to September; and at the same time inflation, which had been as low as 1.9% in March, accelerated to 4.9% as the government removed food and energy-price subsidies.

Part of the answer is in services; while employment in manufacturing is shrinking, whilst in sectors such as financial services, logistics, horeca and tech, it continues to grow. Poland’s unemployment remains the second-lowest in the EU, and real wage growth – though slower than in previous months – continues to put more money in consumers’ pockets. While retail sales overall contracted in September, there was growth in e-commerce (4.9% year on year), and new car sales rose by 11%.

The past month saw the Polish zloty lose value against the pound and euro, but mostly to the dollar. Analysts put much of this movement down to polling in the US suggesting a possible Trump win, which is seen as being unfavourable to geopolitical stability in this part of Europe.

Above-inflation wage growth has been a feature of the Polish labour market for several years, and the politically driven minimum wage is seen as problematic by manufacturers with large blue-collar workforces. From 1 January 2025, the statutory minimum wage will rise by a further 8.5% from 4,300 zł a month gross to 4,666zł at a time when inflation is expected to have stabilised around 5%.

Although the Polish government, formed a year ago, is seen as more business-friendly in its rhetoric, it is difficult to point to specific improvements in the overall business environment – other than the end of a constant stream of unpredictable and poorly considered legislation being pumped out by the parliament. However, given the fact that the government is, in effect, a coalition of three coalitions, and that the president represents the parliamentary opposition, this state of affairs is to be expected. The presidential election takes place in May 2025.

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 eight 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.

Demographics and the labour market

Unemployment is likely to stay 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, reaches 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 1.4%, Wrocław 1.7%, Kraków 2.0%, and Gdańsk 2.6%), 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 (4.0%), Lublin (4.1%) or Kielce (4.5%). All data from Sep 2024.

Unemployment fell in September in Rzeszów and Radom (down 0.2 percentage points), Lublin, Łódź, Szczecin, Warsaw (down 0.1 percentage point); in other cities it’s stable.

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 against the zloty. 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 has continued to weaken against the pound, trading in the band 5.15zł and 5.22zł to the pound, as markets considered the implications of deepening debt and rising public-sector borrowing needs in the years 2025-28.

A weaker zloty makes Polish exports more competitive as well as boosting Poland’s attractiveness as a location for inbound foreign direct investment.

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