Poland outpaces Eurozone, others

The Polish economy contracted by 2.8 percent in 2020. This is the third-best result in the EU. Only Lithuania witnessed a more benign recession, while Ireland recorded artificial growth by 3 percent distorted by the tax incentives offered by its government to multinational corporations.

HOSPITALITY HIT

The Covid-19 pandemic had an especially strong adverse effect on recreation services and the HoReCa (hotels, restaurants and cafés) sector in Poland – during the lockdown, activity in both industries has shrunk by 70 percent. This is one of the steepest contractions in the EU. Still, the fallout from these sectors on overall GDP growth has been limited. Their cumulative share in Polish value added is very low – it amounted to 1.8 percent of GDP in 2019. The figure was approximately ten times lower comparing to the Southern European member states such as Italy and Spain, whose economies recorded much stronger contractions by 8.3 percent and 11 percent.

So far, the economic crisis has been less painful in industrial countries. Like the other CEECs (Central and Eastern European Countries), Poland benefited from good business sentiment in manufacturing – producers of durable goods such as furniture or electrical components recorded double-digit growth rates for a few consecutive months. A major share of their production was oriented toward foreign markets. Therefore, net exports again stabilized the economy during a depression – as in the case of the global financial crisis of 2008-2009.

GROWTH DESPITE CRISIS

The outlook for 2021 is still quite positive. We expect GDP growth at 4.2 percent, slightly above the EC forecast (3.6 percent). Monthly activity indicators such as industrial production, retail trade and construction output, systemically surprised on the upside in Q4 2021 and in January, suggesting that the Polish economy has adapted itself to the pandemic conditions. The first quarter should still show a contraction comparing to the previous year, but we expect positive growth rates from Q2 2021 onwards. 

Economic growth in 2021 is likely to be driven by consumption expenditure. During the pandemic, households have accumulated more savings, which is likely to result in greater purchases when restrictions are less severe. We expect such a phenomenon to occur in the second half of the year. The EC surveys indicate that Polish consumers are less afraid of losing their jobs compared to their peers from Western Europe. They are also less willing to postpone major purchases, e.g. buying a new car or renovating a dwelling.

On the other hand, the rebound of investment should be rather gradual. However, we do not expect lower investments to have a negative influence on the long-term economic potential. According to the EC, cuts in business spending related to production capacity in Poland were the third lowest in the EU, after Latvia and Romania. Furthermore, there are already visible first signs of revival. So far, we have seen an expansion in transportation – the sector to reflect changes in global trends the most quickly. According to the European Automobile Manufacturers’ Association (ACEA), the number of registered light and heavy commercial vehicles in Poland and other CEECs is greater than in the early 2020s. This phenomenon has not been observed in Western economies. As a result, the recovery should be more rapid in this region of Europe.

EXPORTER OF CAPITAL

Poland should also maintain solid net export contributions. PMI surveys show a record expansion of manufacturing orders in the Western Hemisphere – whether in the Eurozone or in the United States. Poland and other CEECs play a major role in the value chain of European economies. Therefore, manufacturing and exports should remain important growth drivers of the economy.

Manufacturing-led expansions should also support Polish external balance. In 2020, Poland recorded a historically high current account surplus of 3.5 percent of GDP. The figure resulted from export expansion, but also from lower imports of raw commodities and capital goods due to the limited mobility of and cuts in investments. We expect the surplus to shrink to 1.5 percent of GDP in 2021, with a recovery of economic activity. Still, this is an important structural change – for the past 30 years, Poland has run a systematic current account deficit. Now, with the expansion of remote working and probable relocations of manufacturing activities, the CEE region has an opportunity to achieve a permanent surplus and become an exporter of capital.

OUTSTRIPPING OTHERS

The growth rate should exceed 4 percent in 2022 and 2023 as well. Economic activity will be supported by the fiscal stimulus from the NextGenerationEU plan. Poland should receive €23 billion from the Resilience and Recovery Facility grants and an even greater amount of preferential loans. Poland will also be a significant beneficiary of the REACT-EU fund (€1.6 billion) and the Just Transition Fund. Although the allocation of funds will start in 2021, the real impact on the economy should be delayed. We expect the first effects to be visible in the second half of 2022. Investments are likely to peak in 2023, pushing the growth rate even above the 2022 level.

The good long-term perspectives of the CEECs’ economies are also present in the EC forecasts which do not assume an impact from the fiscal stimulus. According to the EC, the EU should recover from the pandemic in 2022. However, these forecasts assume further divergence of economic growth. Southern European economies such as Spain or Italy are unlikely to fully recuperate – their GDP is unlikely to return to the 2019 levels in the foreseeable future. Germany and France should experience modest expansion. The EC expects that in 2022 their GDP should exceed the pre-pandemic levels by less than 1 percent. At the same time, the Polish economy is expected to expand 5.3 percent above the 2019 level, with other CEECs’ cumulative growth rates ranging between 2 percent and 3.5 percent.