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Polish Economy

In 2020 Poland experienced its first recession since the end of the communist era more than 30 years ago, according to data published by Poland's statistics office. The economy shrank by 8.9 percent in the second quarter because of the effects of the coronavirus lockdown, after a contraction of 0.4 percent in the first quarter. Recession is defined two consecutive quarters of contraction. Poland was the only European Union member state to avoid recession during the global financial crisis of 2008 and 2009, and had enjoyed healthy growth rates until now.

Poland was the only European Union country to have averted recession during the global economic crisis. Prime Minister Donald Tusk's September 2008 announcement that he intended to guide Poland into the Eurozone by January 2012 seemed a triumph of years of reform and growth. Polish inflation was low and contained. Unemployment had reached a historic low of 6.5%, and GDP had grown by 6.7% the previous year. Days later, U.S. investment bank Lehman Brothers collapsed, leading to an intensified phase of the global financial crisis. By mid-winter, the Polish zloty had lost nearly 50% of its value against the U.S. dollar and 35% against the Euro. Optimism about Poland's economic success gave way to global concerns for the financial stability of the entire Central and Eastern European region amidst financial panic.

Despite the setback, Poland weathered the global crisis as well as any country in Europe. It is the only country in the European Union that is still growing--at 1.1% in the second quarter of 2009. Its conservatively managed banking system--made up largely of Polish subsidiaries of large U.S. and Western European banks--held little in the way of "toxic assets" as the crisis struck. Fiscal moderation of recent years meant that the government's accounts looked fitter than those of, for example, crisis-stricken Hungary or Latvia, while the independent National Bank of Poland's prudence in managing Polish monetary policy constrained the formation of large asset bubbles. Finally, Poland's freely floating exchange rate has supported Polish production--in contrast to the Baltic states, Slovakia, and others--by making Polish goods cheaper and foreign goods more expensive.

While financially healthier than many of its neighbors, Poland suffers from declining exports and investment. Unemployment has risen to 8.2% and looks set to continue growing. The Polish Government is struggling to contain unexpectedly large budget deficits in 2009 and 2010, largely by cutting spending, speeding up privatization, and extracting dividend payments from state-owned companies. Thanks also to the crisis, the government's timeline to adopt the Euro has been extended indefinitely.

On January 1, 1990, the first post-Communist Government introduced an economic reform program known as the "Economic Transformation Program" or the "Balcerowicz Plan", named after the first post-Communist Deputy Prime Minister and Minister of Finance, Leszek Balcerowicz. This radical economic reform program was designed to stabilize the economy and promote structural reforms. Key elements included drastic reductions in state subsidies to state enterprises, elimination of many price controls, introduction of partial convertibility of the zloty and opening the economy to external competition.

After the implementation of the Balcerowicz Plan and throughout the mid-1990s, Poland's average Gross Domestic Product, or GDP, growth rate exceeded 5.0 percent. In 2008, GDP growth was 4.9 percent.

Between 1999 and mid-2000, Poland experienced a period of volatile inflation rates, with inflation reaching a peak year-on-year Consumer Price Index, or CPI, rate of 11.6 percent in July 2000. However, since then, inflationary pressure has eased. Restrictive monetary policy and low domestic demand between 2001 and 2003 resulted in a continued decrease in CPI inflation.

The Polish economy slowed in 2002, posting growth of 0.6%. The slowdown was evident in most sectors including the construction industry (down 8%) followed by the automobile, steel and tobacco industries. However, some sectors experienced output gains, among these were TV, radio, and telecommunication equipment (up 8%). Poland's service sector grew by almost 4%. New investment continues to flow into the country, but at slower rate than in previous years. Poland's gross domestic product (GDP) grew by 4.6% in 2002. The government projects GDP growth of around 5.2% for 2003. In dollar terms, Poland's GDP in 2002 was USD 180 billion. The average rate of inflation in consumer prices fell to 2.4% from 3.6% the previous year, and it is predicted to reach 1.9 % in 2003. Poland's most pressing economic problems remain a high fiscal deficit (about 5 %) and unemployment (nearly 18%).

In 2004, the inflation rate rose steadily due to high food prices and increases in VAT and transport prices (especially fuel prices). Since the beginning of 2005 the annual inflation rate steadily decreased to 0.4 percent (0.6 percent annual average) in March 2006. Since then it has increased to 1.4 percent in December 2006 (1.0 percent annual average), 2.5 percent in March 2007 and 4.0 percent in December 2007 (2.5 percent annual average). The annual inflation rate increased to 4.1 percent in March 2008 and decreased to 3.3 percent in December 2008 (4.2 percent annual average). In March 2009 the annual inflation rate increased to 3.6 percent.

The post-Communist reforms have resulted in deep structural changes in the economy, the most significant being the development of the private sector. Prior to 1990, private sector goods and services accounted for less than one quarter of total GDP and were largely concentrated in agriculture, services and small-scale manufacturing. Since then, the private sector has grown substantially and its contribution to production and employment has significantly increased, due to the growth of newly-established private enterprises and the privatization of State-owned assets and enterprises. In the fourth quarter of 2008, 73.1 percent of the Polish workforce was employed in the private sector compared to 72.3 percent in the fourth quarter of 2007.

In January 2009, the Government approved the "Plan for Stability and Development 2009-2010" in an attempt to stabilize the financial system, ensure economic growth and address the global financial crisis. In an effort to stabilize the financial system, the Government introduced guarantee programs for both deposits and interbank loans and established a financial stability committee. The financial stability committee is composed of the Minister of Finance and the presidents of the PFSA and the NBP and provides for the exchange of information and the coordination of actions taken to maintain the stability of the Polish financial system. In addition, the NBP introduced a "trust package" designed to increase the Polish banking system's liquidity.

In an effort to promote economic growth, a tax rate reduction was introduced and steps were taken to eliminate obstacles for investments co-financed with EU funds. In an effort to address the global financial crisis, the limit on assurances and guarantees of the State Treasury available to financial institutions was raised to PLN 40 billion and a bill was drafted and later passed allowing for the recapitalization of financial institutions by the State Treasury. In March 2009, Poland increased the capital of Poland's state-owned Bank Gospodarstwa Krajowego for purposes of providing new loans to small and medium-sized companies. The Government has recently established an addtional initiative to stimulate the Polish economy, under which the Industrial Development Agency SA may provide support in connection with access to financing to medium and large enterprises in any sector, but with a particular emphasis on providing support to the defense sector.

The primary objectives of Poland's National Development Plan 2007-2013 is to put the economy on a path of high and sustainable growth, through improved competitiveness of firms and regions, to contribute to the recovery of employment, and promote strong social cohesion.

In 2004, GDP growth amounted to 5.3 percent. In Poland, GDP is generally used as an economic index rather than gross national income. In 2005, GDP growth decreased to 3.6 percent. GDP growth amounted to 6.2 percent in 2006, 6.8 percent in 2007 and 4.9 percent in 2008. In 2004, Poland's economic situation showed a marked improvement after a two-and-a-half year slowdown. GDP rose by 6.9 percent in annualized terms in the first quarter of 2004 and 6.0 percent in annualized terms in the second quarter of 2004. GDP growth decreased in the second half of 2004 and amounted to 4.8 percent in annualized terms in the third quarter of 2004 and 4.0 percent in annualized terms in the fourth quarter of 2004. GDP growth decreased further in the first quarter of 2005, reaching 2.4 percent in annualized terms and then rebounded reaching 3.2 percent in annualized terms in the second quarter of 2005, 4.3 percent in annualized terms in the third quarter of 2005 and 4.4 percent in annualized terms in the fourth quarter of 2005. GDP rose by 5.4 percent in annualized terms in the first quarter of 2006, 6.3 percent in annualized terms in the second quarter of 2006 and 6.6 percent in annualized terms in the third quarter of 2006 and 6.6 percent in annualized terms in the fourth quarter of 2006. Further growth was observed in the first quarter of 2007. During the next three quarters of 2007 GDP growth remained stable at the level of 6.5 percent in annualized terms. In the first three quarters of 2008 GDP growth amounted to 5.7 percent in annualized terms. GDP growth reached 2.9 percent in annualized terms in the fourth quarter of 2008 and 1.9 percent in annualized terms in the first quarter of 2009.

Poland's economic recovery in 2003 and 2004 was driven to a large extent by exports and the improved competitiveness of Polish enterprises which had benefited from a favorable exchange rate. Net exports' contribution to GDP growth in the first and second quarters of 2005 amounted to 1.0 and 3.2 percent respectively. In the third and fourth quarter of 2005, it decreased reaching 1.6 percent and -1.2 percent respectively. The contribution of net exports to GDP growth amounted to -2.7 percent in the fourth quarter of 2006, -1.5 percent in the fourth quarter of 2007 and -0.7 percent in the fourth quarter of 2008. The gradual recovery of domestic demand also contributed to GDP growth reaching 5.6 percent in the fourth quarter of 2005, 9.3 percent in the fourth quarter of 2006, 8.1 percent in the fourth quarter of 2007 and 3.6 percent in the fourth quarter of 2008. The contribution of gross fixed capital formation to GDP growth reached 2.6 percent in the fourth quarter of 2005 and 4.2 percent in the fourth quarter of 2006, as compared to the period from the second quarter of 2001 to the first half of 2003, when it was negative. Contribution of gross fixed capital formation to GDP growth reached 4.3 percent in the fourth quarter of 2007, but it amounted to only 1.4 percent in the fourth quarter of 2008.

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Page last modified: 30-06-2021 12:05:44 ZULU