Our Opinion: 2024

Poland : Under new management

Last autumn, after eight years in power, Poland’s Conservative government relinquished power and handed over to a centrist coalition.

The incumbent PiS (Prawo i Sprawiedliwosc – Law and Justice) won the popular vote with 35%. However, it did not have enough seats to form a government. That paved the way for a coalition of the centrist Civic Coalition, the far left Lewica Party and the Trzecia Droga (Third Way), that won 14% of the vote and played an important role by attracting numerous conservative voters who were unhappy with the government. Overall, this alliance secured 248 seats in the 460-seat parliament.

Donald Tusk is now the Prime Minister. He previously served as prime minister from 2007 to 2014. After losing power to PiS, he was then president of the European Council until 2019, before re-entering domestic Polish politics in 2021. However, at least until 2025, he will have to work alongside Duda, a member of PiS, whose presidential powers give him the ability to veto legislation, unless overridden by a three-fifths majority vote in the Sejm, the Polish Parliament.

The outcome of the election immediately led to a bounce in the share prices of Polish banks – the largest sector in the index, while the Polish zloty strengthened a little. The legacy of PiS has been highly controversial when it comes to social issues, its contentious attitude towards the European Union, which blocked billions of euros in subsidies, and the rule of law, with PiS making ‘reforms’ that undermined the independence of the judiciary. However, its economic legacy is surprisingly strong overall and foreign investors seem to have been undeterred by national politics.

Since joining the EU nearly 20 years ago, Poland has been a success story. Continuing to shed decades of communism, it recorded steady growth of over 5% annually and nearly tripled its GDP. Its success is in large part driven by its close economic ties with Germany and by EU funding. Poland has received over €230bn since joining the EU and expects an additional €76bn of subsidies in the 2021-2027 period.

Poland’s GDP is forecast to reach $840bn this year, larger than Taiwan or Australia and representing about 5% of EU GDP. Nevertheless, it is still only a quarter of the size of Britain’s, despite having more than half of its population. To use GDP per capita as a measure of development Poland’s GDP is around $22,000 per head, well behind $52,000 for Germany. Even in terms of purchasing power parity (PPP), which allows for the difference in the costs of goods and services between countries, GDP per capita is $45,000 (Italy is $54,000 and Germany $66,000). The potential for growth is clear.

Poland has become a major industrial hub in Europe, helped by its position at the centre of central Europe, sharing borders with Germany, the Czech Republic, Lithuania, Slovakia and Ukraine, as well as Belarus and Russia. Exports have led GDP growth. The port of Gdansk, a member of the Hanseatic League during the Middle Ages, once again offers convenient maritime trading routes with northern Europe in the modern era. Its infrastructure (roads and rail), along with a skilled workforce, is clearly a major factor in its success.

Even more remarkably, Poland’s growth has been the strongest in the EU since Covid, contracting by only 2% in 2020 and bouncing back by nearly 7% the following year, due to fiscal measures and monetary support that cushioned the economic impact of the pandemic and subsequently of the Russian invasion of Ukraine.

The crisis in Ukraine has propelled Warsaw onto the global stage over the last two years, with mixed results. It had to cope with an influx of 1.5 million Ukrainian refugees. Warsaw’s population increased by 15%, Kraków’s by 23%, and Gdansk’s by 34%. Many of the arrivals proved to be consumers as they set up in a new country, which benefited the retail industry. There was an influx of qualified workers hired in the banking and technological sectors. However, the sudden expansion in population also put significant pressure on Polish infrastructure. In addition, many international organisations sent staff, which contributed to rents nearly doubling in some parts of Warsaw.

International companies are ploughing cash into Poland. Foreign direct investment (FDI) increased by 50% during PiS’s tenure, reaching a record €25bn in 2022.

The new government led by Tusk is likely to keep most of the PiS promises regarding loose fiscal policies and focus on housing and green energy. He will have to manage Poland’s demographic challenges. With a shrinking, ageing society, Poland is facing staff shortages in many industries and businesses indicates it needs two million workers. The new government is likely to open borders instead of addressing the issue of the large Polish diaspora that has left the country.

In the short term, the provision of large amounts of EU funding, that was held back recently, will deliver a boost to the economy. Poland is the largest beneficiary of Next Generation EU funding, including €22.5bn of grants and €34.5bn of loans requested, totalling a staggering 8.7% of GDP, which could lead to a credit-rating upgrade.

Whilst bureaucracy remains a problem, Tusk is likely to privatise many companies, with the aim of depoliticising the economy and undoing some of PiS’s efforts to exert greater control.

This will create further interesting opportunities for investors in what is already one of Europe’s most promising markets.

11th January 2024