The big picture for UK and foreign investors interested in Poland. Key macroeconomic indicators updated monthly. [GUS = Główny Urząd Statistyczny – Statistics Poland]
|
|||||||||||||||||||||||||||||||||||||||||||||
Commentary
Poland’s economic growth (3.2% in the year to the second quarter of 2024), surprised analysts and investors positively. Last month, Eurostat announced that Poland as having grown even faster over the same period (4.0%), the fastest growth in the EU27.
But where is the growth? Industrial production shrank in August as did construction output, and retail sales grew at just 2.6%. CPI inflation, which had been as low as 1.9% in March, accelerated in the year to September to 4.9% as the government removed the zero % VAT rate on food and consumer energy-price subsidies.
Yet analysts continue to raise their forecasts for Poland’s GDP growth in 2024, with Fitch hiking its forecast from 2.8% to 3.0% and Erste Group Bank revising its upwards from 2.8% to 3.2% in late September. The question remains whether the fourth quarter will see a revival in manufacturing, export sales and investment.
The Polish Household Budgets Study 2023 was published yesterday, according to which the average monthly disposable income per person amounted to 2,622 zlotys, a nominal increase of 14% compared to 2022 (with inflation averaging 11.4% in 2023 and 14.4% in 2022). However, the income situation was regionally diversified, with the highest income in the Mazowieckie voivodship and the southern macro-region, and the lowest in the northern and eastern macro-regions. Household expenditure increased by 9.4% compared to 2022. On the expenditure side, households spent the most on food (27.2%), housing (19.9%) and transport (9.0%).
The Polish government has just published its debt management strategy to 2028; this foresees Poland’s debt peaking in 2027 at 48.6% of GDP before declining to 48.3% of GDP in 2028. However, by the accounting criteria set out in the EU’s Excessive Debt Procedure, Poland’s overall public-sector debt is likely to exceed 60% by 2027, which would normally trigger EU Commission action. However, given the significant element of Polish defence spending, it is likely that the EU will not enforce the usual measures against Poland.
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.
The 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 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 1.5%, 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 23.5%. Nearby Radom, a city of 200,000 people, also has high unemployment at 9.7%. New investors might wish to consider university cities such as Łódź (4.6%), Rzeszów (4.2%), Lublin (4.2%) or Kielce (4.5%). All data from Aug 2024; an uptick has been noted in Gdańsk, Radom, Łódź and Rzeszów and a fall in Lublin.
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 weakened against the pound, trading in the band 5.06zł and 5.15zł to the pound, as markets considered the implications of deepening debt and rising public-sector borrowing needs in the years 2025-28.
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
