Insight Poland

Is the “Polish economic miracle” at risk? 


Warsaw, Poland – As the Polish government recently announced – quite prematurely for some – “the beginning of the end of the pandemic”, an unprecedented rise in inflation and a strained global economic context battered by over two years of Covid-19 bring forth a critical question: how resilient is Poland, and is the “Polish economic miracle” now at risk?

The “Polish economic miracle” resists

One of the most resilient and fastest-growing economies in Europe in the past decades, Poland is regularly described as a success-story envied by many of its neighbours.

It was, after all, the only European economy that didn’t contract in 2009. Although recording its first recession in three decades in 2020, the country appeared to have managed better than most to mitigate the economic turmoil caused by the pandemic.

Its national GDP contracted by “only” 3.5% according to biennial 2019-2021 estimates, a performance evidently linked to the staggering performance of the Polish economy pre-pandemic. Meanwhile, Eurostat figures put Poland’s employment rate at 2.9% in December 2021, the second lowest in the EU after the Czech Republic.

The government has been quick to claim this situation as a direct consequence of its recovery policy efforts, including the anti-crisis package announced in the spring of 2020.

But “contrary to the government claims of able stewardship, it is good fortune, prioritizing GDP over health, and restrictions centered more on personal than on economic freedoms that explain why Poland has so far remained relatively unscathed,” wrote economists Paweł Bukowski and Wojtek Paczos in a recent paper.

What’s special about Poland?

Despite being a characteristic common to other CEE countries, Poland’s semi-peripheral location in Europe may have been a blessing in disguise, giving a window of opportunity to local policy-makers to come up with more appropriate and targeted restrictions and react faster than their Western European counterparts.

Poland and more generally Central Europe’s quick reactions during the first phase of the pandemic evidently played a key role in minimizing the economic impact of lengthier lockdowns and added uncertainty prevalent elsewhere.

Poland’s own domestic geography is also at play: its extended rural areas – where approximately 40% of the population lives – resulted in a much lower speed of contagion and transmission than other, more urban European countries.

Its larger domestic market – compared to countries like Hungary, Czech Republic, or Slovakia – proved an added advantage to support local businesses and consumption in troubled times for global demand.

Regardless of geography, the key explanation may lie in the structure and composition of the Polish economy. Its relatively diversified manufacturing and exports sector has allowed to cushion the blow of global supply chain disruptions throughout 2020 and 2021.

Moreover, Polish exports benefited from the shift of consumption from services (heavily hit but accounting for a lower-than-European-average proportion of employment in Poland) in favour of certain types of durable goods in high demand, including from neighbouring Germany, during the pandemic

A worrying pattern

But nearly two years after the first case of coronavirus was confirmed in Poland and as the government faces mounting criticism for prioritizing growth over public healthcare, clouds are gathering on the horizon.

At the end of last year, Poland registered an inflation rate of more than 8%, the highest annual jump since the early 2000’s and among the highest in the EU. That worrying record had already been broken only a few months later in early 2022, according to early estimates.

Poland is evidently no isolated case in that regard, but the six-month consecutive rise of the inflation rate – which many analysts expect to go on for most or the whole of 2022 – spells trouble for the country, paradoxically at a time when hopes for a post-Covid era run high.

Although the Polish government has unveiled two ambitious anti-inflationary shields worth up to 30 billion zloty overall, economists remain sceptical as to its impact, which may simply provide additional fuel for future consumer and retail price increases.

Measures including a reduction in the excise tax on fuel, lower VAT on gas and electricity, cutting VAT on food and gas, on top of piecemeal solutions like a special allowance for around five million households, may help struggling businesses and families cushion the blow in the short term, but add unnecessary pressure on wages and prices in the long run.

With more than 18 months to go until the 2023 parliamentary elections, the Polish government and ruling PiS party are faced with a difficult balancing act.

By Francesco Miano