Summary – Opening Balance Report

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We present the seventh report in the Warsaw Enterprise Institute’s series “Opening Balance”, in which we diagnose Poland’s economic development in comparison with other European countries, asking the key question: when will Poland catch up with the most developed countries of the continent, especially Germany? We analyse the state of our economy in terms of GDP growth, debt, foreign trade dynamics and Poland’s attractiveness as a place to live.

This report is a kind of balance sheet of our achievements with which we will open 2022. It takes into account the changes that took place as a result of the pandemic and the effects of countries’ policies to limit the supply of goods and services on the market (i.e. lockdowns). Due to the dynamics of events related to the pandemic, it was sometimes decided to supplement the analysis with quarterly (economic growth) or even monthly (inflation) data. The geographical scope of analyses covers all European Union countries and world leaders in terms of GDP, exports or imports. Particular attention was paid to countries that are in a similar situation to Poland, either in terms of the value of certain indicators in earlier years or in terms of the structural situation (systemic transformation). In this report we already have at our disposal, in most cases, data for 2020.

In the last decade (since 2011), Poland was the third fastest growing EU economy after Malta and Ireland, and although in 2020 it recorded a recession, it was relatively mild compared to other countries. In contrast, GDP per capita in purchasing power parity terms in Poland rose from 73% of the EU average in 2019 to 76% in 2020. – Meanwhile, the same indicator increased in Germany by 1 p.p. (to 121 percent). If the pace of catching up with Germany over the past decade were to continue (about 1 p.p. per year in the case of Poland), this would mean that we could catch up with that country in 34 years.

The Polish economy has proved remarkably resilient to the pandemic crisis compared to other economies. While others have struggled with falling demand for their goods, Poles have exported mightily. Never before in history has the value of Polish exports been so high – in 2020 it reached USD 271 billion. By maintaining a high growth rate, we may soon overtake India, which is much larger in geographical and population terms. We are also an important importer, 20th in the world, ahead of Russia, among others.

So it is no longer surprising that more people immigrate to Poland than emigrate from it. In last year’s report, we observed a positive migration balance for the first time – in 2018, 24.3 thousand more people came to our country than left it. In 2019. (the latest data) this situation deepened: the migration balance was already 46.1 thousand people. This indicates very well the attractiveness of our country for the population of other countries and our own. Unfortunately, the increased influx of population does not translate into an increased interest in obtaining citizenship of our country.

Unfortunately, phenomena such as rising debt and high inflation, which devalues part of the wealth earned by Poles, prevent us from concluding that Poland was able to turn the crisis time of the pandemic to its advantage. Yes, in the pre-pandemic year Poland’s public debt was at a safely low level of 45.6 per cent of GDP, which gave plenty of room for manoeuvre at a time when more state spending was really needed, but it has now reached 57 per cent, and there are no ideas – apart from raising taxes – as to how to pay it off. Central bank policy, which was supposed to ease the burden of debt, has now become a serious social problem, as it has translated into high inflation. This in turn tends to affect the poorest people the most – hence it is no wonder that the government has prepared an “anti-inflation shield”. However, it may contribute to higher inflation in the coming months.

We concluded last year’s report by writing that “the outlook for 2021 is therefore not stable and raises investment risks – in view of the inevitable future rise in interest rates”. Interest rates have indeed risen, not only those set by the central bank but also, more importantly, those set by the market, with the result that yields on Polish bonds have risen. This means that investors are looking at the situation in Poland with greater anxiety than a year ago.

The good news is that our net foreign debt in 2020 already represented only 16% of GDP, which was lower than in previous years (21% in 2019). To some extent, this reduces the risk of our country’s external insolvency and the possibility of it being influenced by external factors, such as perturbations on global currency markets.2022 will be a time of test – whether the government decides to free the Polish economy so that it heals its pandemic wounds faster, or whether it decides to tighten the regulatory-fiscal screw. The “Polish Deal” leads us to believe that we are dangerously close to the second scenario.



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