It is hard to overstate the remarkable transformation of Poland since events there about 25 years ago kicked o revolutions across the Eastern Bloc. An enormous economic and political transformation took hold that has seen the Polish economy double in size to become the eighth largest in the EU (which it joined in 2004), while GDP per capita has moved from 32% to 60% of the Western European average. Poland was the only EU country to avoid recession as a result of the 2008 global financial crisis.
The World Bank, not exactly known as a place of over-the-top rhetoric, even went so far as to call Poland's recent run of economic growth a “golden age”. Given the country’s troubled history of war, occupation and foreign domination, it seems a virtual certainty that Poles have never enjoyed a more prosperous and peaceful two decades.
The question now is whether this “golden age” has come to an end. After eight years of pro-market reforms and relative stability under the centrist Civic Platform-led government, the conservative, populist Law and Justice (PiS) first took the presidency and then became the first party in the history of post-communist Poland to secure an outright majority in the lower house, the Sejm, and the upper house, the Senate, in the October 2015 elections.
In a classic case of majoritarian thinking, it has immediately set about undermining the democratic checks and balances in the system to assume control over all the levers of power, while also throwing fiscal caution to the wind by meeting its campaign promises which inevitably tend to be consistent with its conservative, pro-family, Catholic agenda. They include a PLN500 (€113) monthly child bene t payment for every second child in a family that will cost €3.9bn in 2016 alone. How to pay for it? Taxes, of course, on the usual suspects: financial assets, banks and insurance companies.
None of this, needless to say, has been welcomed by investors or economists. On May 14 Moody's Investors Service became the latest institution to express its misgivings about the new turn, changing the outlook on the sovereign’s ‘A2’ rating to negative from stable. The reasons cited were the fiscal risks related to a substantial increase in current expenditures as well as the intention to lower the retirement age; and the harm to the investment climate from a shift towards more unpredictable policies and legislations, “as relected in the ambiguity with respect to the conversion of foreign- currency denominated mortgages and in the prolonged stalemate between the government and the country's constitutional court”.
The International Monetary Fund, in its annual health check on the Polish economy released in May, encouraged the government to embark on “market-friendly” policies to preserve its position as the EU’s best performing economy since 2004. But with the PiS high on power and determined to haul at breakneck speed the country back on to its chosen path of conservatism mixed with a prickly nationalism and hints of isolationism, what are the chances of that?
Table of Contents
Executive Summary 5
Recent developments 7
Macroeconomic overview 11
Industry and trade 16
Labour and retail 18
External sector and trade
Balance of payments and current account 21
Foreign direct investment 23 External debt 24
Foreign reserves 25
Government debt 28
Foreign exchange 29
Financial sector and capital markets
Banking system 31 Interest rates 33
Stock market 34
Industry and sector news
Car production and sales grow 37
Housing construction to rise 38
Gas projects to reduce dependence on imports 38
Steel companies to merge for competitiveness 39
Major Corporate News 41
Release Date: Fri, 17 Jun 2016