National Economy Poland’s Economy at a Turning Point

Author / Editor: Andrzej Ostrowski / Susanne Hertenberger

The Polish market sends unclear signals about the development prospects. Uncertainty in this fundamental issue plus a lot of question marks about the results of changes in taxes, labour legislation and retirement regulations do not encourage bold business decisions.

The economists agree that the Poland’s economy is at a turning point, as evidenced by a slower GDP growth rate since 2014
The economists agree that the Poland’s economy is at a turning point, as evidenced by a slower GDP growth rate since 2014
(Source: Sergey Nivens - Fotolia)

The economists agree that Poland’s economy is at a turning point, as evidenced by a slower GDP growth rate since 2014. The forecasts of the European Commission and the National Bank of Poland indicate that at least to 2020 the growth will not speed up considerably which may mean that the macroeconomic assumptions made while building the 2017 budget will turn out overoptimistic. The cause of the slowdown is the weakness of the economy model adopted in Poland after 1989 which does not generate sufficiently strong pro-development impulses.


What’s up in economic policy

The answer to challenges which Poland faces is to reshape the economic policy as outlined in the Cabinet’s “Responsible Development Strategy” which defines principles, objectives and priorities of Poland’s development until 202 and 2030. Of course, some proposed solutions have appeared before in earlier programme documents, but at least four elements are new or much more emphasized features in the Polish economic policy, namely:

• need for an active role of the state in shaping the entrepreneurs’ behaviours which are important from the development point of view: savings, investing and implementation of innovations;

• departure from the previous so-called polarization-diffusion development model of the country. The critics of that concept indicate that in practice there are numerous obstacles to the diffusion of accelerated development of large cities to the peripheries, and as a result there is a further polarization of development level between urban and rural areas;

• strong links between the economic policy and social policy to guarantee that the economically weakest social strata will also benefit from the development, Hence, the need for redistribution aiming at equalization of opportunities of the poor, particularly in small towns and in the country;

• huge emphasis on strengthening the domestic capital as a counterbalance to the foreign capi-tal. This does not mean that the role of foreign investors will be questioned; to the contrary, they will still play a very important role, e.g. in the automotive or aerospace industries. However, the streams of foreign capital should be channelled to the sectors which have a preferential treatment in the state’s economic policy. It is also important that direct foreign investment goes beyond simple assembly of imported components and concerns the production with large added value, requiring high competence and input from Polish scientific and engineering thought.

A lot of question marks

The prospects of Polish industry and economy in 2017 will be a function of implementation of a new economic policy model and the way in which the looming dilemmas will be solved. Firstly, the freedom of business and the need for further deregulation of Poland’s economy must be somehow reconciled with the need to strengthen the role of the state in shaping the market behaviours of entrepreneurs. In this context, it is very important that the announced “Constitution for Business” with its liberal assumptions could be fully applied in practice, particularly in juxtaposition with provisions of the Tax Act, the Penal Code and the Fiscal Code.

Secondly, it is no secret that it is difficult to build the trust to the state and its institutions when they are undergoing significant changes. The polls among the businesspeople indicate that the sources of uncertainty in terms of market prospects and conditions of running a business include the announced changes in tax laws (uniform tax) on one hand, and on the other hand – the risk of an in-creased public deficit which can disturb the macroeconomic stability. Building trust to the state institutions and economic policy is particularly important in the face of numerous question marks in international relations such as further developments in the Ukraine and EU policy towards Russia (EU sanctions), future of the European Union after Brexit, migration crisis, economic slowdown in Germany and in the whole Eurozone.

Thirdly, it will be a huge problem how to stimulate a faster growth in the economy when the entrepreneurs are very doubtful of market prospects. Situation on the German market is particularly important for Polish exporters, and the European Commission forecasts indicate a clear growth slow-down to 1.2-1.3% in 2016-2017. The data of Central Statistical Office (GUS) on the Poland’s GDP dynamics in three quarters of 2016 indicate that the 2017 growth rate assumed by the Ministry of Finance could be difficult to achieve, particularly as a result of insufficient investment in fixed assets, unless the projects cofinanced by the EU will start soon on a massive scale.

Overcoming the barriers to growth faced by Poland’s economy requires a departure from the old development model and an implementation of mechanisms based on wide use of knowledge, innovations and high-tech, in combination with large investments. It is possible to exit the state of drift, but a new approach is needed in economic policy, its objectives, priorities and implementation tools.