Opening Balance 2023: Will we catch up with Germany, and when?
We present the 9th report in the Warsaw Enterprise Institute’s “Opening Balance” series. The purpose of these reports, always issued at the end of the calendar year, is to prepare for the new year’s opening. It is an attempt to summarize the achievements of Poland’s transformation so far and the events of the year that are coming to an end. To identify the most critical challenges that await our country in the coming years, we try to draw attention to the main goal that should accompany Polish economic policy, i.e., to catch up with the wealthiest EU countries as soon as possible. We take Germany as a particular point of reference. Hence, every year, we check whether we are getting closer to Germany and – at what pace? In addition, we examine our country’s position in areas such as international trade, state finances, and migration attractiveness. Our report is based on available annual data and, where possible, supplements it with the most recent partial data (quarterly or monthly), which allows us to estimate current trends.
The “Opening Balance 2023” reveals that…
POLAND IS CATCHING UP WITH GERMANY, BUT MORE AND MORE SLOWLY. IF THIS CONTINUES, IT WILL CATCH UP WITH THEM ONLY IN THE MID-1960S XXI CENTURY. IF PRO-GROWTH REFORMS ARE INTRODUCED, IT IS POSSIBLE SIGNIFICANTLY TO ACCELERATE AND CATCH UP WITH GERMANY ALREADY AROUND 2038!
- In 2022, Polish GDP per capita was about 80 percent of the European Union average. Maintaining the current pace of development, we will catch up with the EU average in nearly 14 years.
- Catching up with Germany is possible. Poland has shown much faster economic development in recent years than Germany and the EU average. In the case of the variant with significant structural reforms, we will catch up with Germany in about 15 years (in 2035-2037), and with the continuation of the current trends, we will be in nearly 40 years. At the same time, it is worth noting that Poland may catch up with Japan in terms of GDP per capita by purchasing power parity in the next decade, i.e., around 2032.
- Thus, continuing the current development gives Poland a real chance to catch up with one of the world’s wealthiest countries, although not at the rate that Ireland has done. The example of Lithuania, which previously had a higher GDP growth rate than Poland, shows that Poland’s economic growth need not be mainly the result of EU integration but also the result of internal factors and the effectiveness of monetary policy.
Staying upward, especially giving growth more impetus, will take work. External forces are playing against Poland, manifested by the war across the eastern border. Global economic trends are far from recovering, and protectionist policies implemented by more and more governments need to be helping. As for the domestic situation, problems are piling up as a result of years of neglect and chaotic pandemic actions in areas such as monetary policy, legislation and taxation, and the judiciary. We’re talking about still-high inflation or low investment rates. As a result, our GDP growth is slowing down. Does this mean that “the good times are over”? Not necessarily. The new government will be able to solve the problems the precedents failed to address. We live in an era of great geopolitical transformation. Suppose our country’s economy can be strengthened. In that case, this will allow it to use the “geo-conflict” to its advantage, i.e., so that Poland will go from being an importer of decisions about the fate of the EU to being an exporter. That’s saying “in economic terms.” And translating into understandable words so that its voice is the voice of a co-decision-making state in the international arena.
Good news from “Opening Balance 2023”
Poland can enter the ranks of the world’s 20 largest economies (G20) within 10 years, assuming sustained growth and exceeding a 1 percent share of global GDP.
After the pandemic, Poland had exceptionally high GDP growth, after which economic growth declined until Q1 2023. However, economic growth has been accelerating slightly for the past two quarters.
Poland is also showing upward trends in GDP per capita, which indicates the country’s improving welfare and economic development, in the context of the overall upward trend in the EU.
Poland’s improvement is linked to rising labor productivity, which has increased by 25 percent since 2015. In terms of this indicator, only Ireland has recorded a higher performance in the EU.
Poland is a strong exporter of services. Poland has increased its service exports more than 5 times in the last 17 years (to $96 billion). This is the result of the development of sectors such as business services, IT, but also tourism and transportation. In 2021, Poland was ranked 3rd in the European Union and 7th in the world in terms of surplus in services trade (in 2020, our country was even in 6th place).
Trade relations between Poland and Germany are getting stronger. Germany is Poland’s key trading partner, accounting for almost 29 percent of Polish exports and 21 percent of imports. Poland is steadily strengthening its position in the German market. In 2021, Poland was Germany’s fifth-largest trading partner, accounting for almost 19% of the increase in turnover compared to the previous year (this turnover in 2022 increased by €20 billion compared to last year).
Public debt is under control. Poland maintains a relatively moderate level of public debt, which is consistently falling, indicating stable management of public finances. This is a positive sign in the context of an overall improvement in the debt situation in the European Union.
Poland has one of the lowest unemployment rates in the EU, at around 3 percent. In the period under review, only two countries had lower unemployment rates. Germany registered higher unemployment than Poland.
Real estate is getting more expensive but less than in other countries. Although Poland and other EU countries have seen a dynamic increase in real estate prices since 2015 (by 75 percent), it has been lower than in many other countries of the system transformation.
Poverty is declining. The percentage of people at risk of extreme poverty has fallen in Poland from 2.3 percent in 2015 to 0.6 percent in 2022, one of the best results in the EU and well below the EU27 average. This trend indicates an improvement in the social and living situation in Poland. This improves Poland’s image as a country to live in.
We have been consolidating our status as an immigration state since 2010. Poland had the most significant migration deficit in the entire EU, but as of 2018, more people are coming to Poland permanently than leaving in 2019. Poland was in 8th place, in 2020 in 6th place, and 2021. – 10th place. This is an excellent indication of the attractiveness of our country to the population, and it shows a vast improvement in our country’s situation.
Bad news from “Opening Balance 2023”
Poland’s GDP growth rate is no longer exceptional. In 2022, according to estimates by the International Monetary Fund (IMF), Poland ranked 88th in the world in this respect, although an update has improved this position to 63rd. IMF forecasts for the current year indicate that it could be the worst year in more than 40 years with growth of just 0.56 percent, putting Poland far down in the world rankings. In 2024, with projected growth of 2.28 percent, Poland is expected to rank only 139th in the world, which is considered a modest result, especially given the need to catch up with other countries.
Imports and exports as a share of GDP no longer show strong upward trends. As of 2021, most EU countries have seen an increase in the share of exports in GDP. Poland showed moderate growth, remaining close to the EU average, but lower than most of the new member states (except Croatia and Romania). The share has been declining slightly since Q3 2022. In 2021-2022, there was an upward trend in imports, indicating an improvement in the economy, but this trend weakened in 2023 (from Q3 2022).
The low level of investment is a bad sign for the future. The level of investment relative to GDP oscillates around 17-18 percent, which is one of the lower results in the EU. Compared to the Czech Republic, which had the highest share of investments, Poland presents itself as a country with stable but low investments in the EU economic context – in the period 2021-2023 it recorded the third worst result in the EU (after Bulgaria and Greece).
Deficits are becoming a problem. Although Poland has a relatively stable and low public finance deficit – the second lowest level in the entire EU in Q1 2021 – the situation is worsening and we are no longer a leader here (we are currently in 6th place). The significant recent increase in the deficit requires attention, especially in the context of expectations for the last quarter of this year.
Poland is one of the EU countries with the lowest level of savings, which means it is necessary to raise funds for investment from abroad.
Poland’s attractiveness as a place to settle permanently is growing too slowly. This is illustrated by the low statistics of citizenship granted (13th place) or asylum applications filed (15th in 2022) in the EU.