Poland’s Problems

Pity the Poles. They are caught between a rock and a very hard place. “Poles had good reasons to count their blessings as their neighbor Ukraine began sliding into turmoil this year,” wrote Bloomberg Businessweek’s Carol Matlack. “Poland is not only a stable democracy with its defense assured by NATO—it’s also one of the European Union’s star economic performers. The central bank in Warsaw forecasts the economy will grow 3.6 percent this year, more than three times the projected EU average of 1.1 percent.

But as the conflict in Ukraine drags on, fears of contagion are rising. The central bank this week held its benchmark interest rate at a record low, citing what bank chief Marek Belka described as the “dynamic and very serious” situation in Ukraine.

A Markit Economics survey of Polish purchasing managers found that business sentiment in April fell to a nine-month low. Polish consumer confidence declined during April, according to European Commission data.

Indeed, noted Bloomberg News’ Dorota Bartyzel recently, “Poland’s economic growth quickened to the fastest pace in two years as record-low borrowing costs revived investment and consumer spending.....Poland is set to outperform the European Union’s largest post-communist members this year and in 2015, according to a spring forecast by the European Commission. Borrowing costs have been kept at a record low since July and policy makers have pledged to keep the key rate unchanged until at least the end of the third quarter to bolster consumer demand and investment.”

But there are problems, noted the Economist in March. “[T]he OECD, an intergovernmental think-tank, said that more reforms are needed to get the economy growing fast again. The country ought to raise productivity by liberalising the labour market, privatising state-owned enterprises, cutting red tape and making agriculture competitive.”

Despite progress, participation in the labour market remains limited. This problem will deepen as the working-age population shrinks. Poland’s birth rate is low and emigration, especially of the young and skilled, remains high.

A cautious Polish central bank has kept interest rates at a record low and has pledged to keep them steady. But the uncertainty regarding Ukraine means that the future of Polish exports – 8 percent of which go to Russia and Ukraine – also is uncertain.

While many Poles continuing to seek their future abroad, the recent past has been relatively good to Poland, noted the Guardian’s Remi Adekoya: “Of the 10 mostly post-communist countries that joined the European Union exactly a decade ago today, none has benefited more from membership than Poland. First and foremost, there's the cash: the country received £56bn in development funds between 2007 and 2013, money that was used to build hundreds of kilometres of highways and express roads as well as youth sports facilities, modern sewerage systems, kindergartens and pre-schools.”

Add to that the £60bn earmarked for Warsaw in the EU's 2014-20 budget and the country will have enjoyed a windfall equivalent to roughly double the value of the Marshall Plan, calculated in today's dollar figures.