Poland 2002-2006: Midyear Summary
a report published by PMR Ltd.
On September 16, 2002 PMR Ltd. (
www.polishmarket.com) published the third edition of its report entitled Poland: Economic Review and Forecasts. The aim of this report was to provide the most accurate possible analysis of major factors for investment-decision makers in Poland in light of events in the first seven months of 2002, such as: the continuing downward trend in the Polish economy in the first half of 2002, the resignation of the Minister of Finance and the appointment of a successor, work on next year's budget, the approaching decisive phase in accession negotiations, changes on the labour market and subsequent changes in labour costs for employers. These factors will have a significant impact on Poland's prospects for economic growth in the course of the next 3-4 years. The PMR report presents the most likely scenario for economic growth in Poland in the years 2002-2006 (prepared by NOBE specialists) and offers an analysis of the situation in particular economic sectors of the economy.
The amount of foreign investments in Poland in 2002 will be lower than in 2001.
This will reflect not only the reduced appetite for investments throughout the world but also the fact that Poland is no longer perceived to be a very dynamic and open market economy. The main macro-economic factors in Poland indicate that although the country will not achieve a 5%+ growth rate in the next 3-4 years it will be one of the most attractive countries in the region from an investment point of view.
Above all, the fourth quarter of 2002 will see a positive increase in investments, which will result in an average annual growth rate of more than 7% in the years 2002-2006. This fact, together with an increase in consumer demand, will greatly stimulate the GDP growth rate, rising to 3.7% in 2003 and then to 5.2% in 2004. After a small increase in imports and exports in 2002, the growth rate for imports and exports in the next few years will accelerate, resulting in an average annual growth rate in exports and imports in the years 2002-2006 of 6.5% and 7.8% respectively. This higher economic growth rate will be accompanied by macro-economic stability. The annual inflation rate will osscilate around 4% in the years 2002-2006. A further stabilization in public finances will occur, as a result of which the budget deficit, which will amount 5% of GDP in 2002 will fall to 3% of GDP in the years 2003-2005.
Source: PMR Ltd./NOBE, 2002
Poland's expected entry into the EU in 2004 will have a positive impact on its prospects for economic growth and ability to attract investments. Not only will it help increase investment and consumer demand in Poland, it will also stimulate trade, which by then will be free of border controls. The cost of imports and exports from/to EU member states, as well as costs incurred up to now as a result of adjusting firms to different regulations in Poland and EU member states will be significantly reduced. In the long term, the transfer of European management models to Poland will help improve administrative practices at local government levels.
Poland is slowly losing its reputation for having a cheap labour force. It can no longer compete in terms of unskilled labour costs with poorer countries in Eastern Europe and Asian countries. However, labour costs in Poland are still several times lower than in the poorest EU states. Productivity is also at a much lower level. Trends over the last few years indicate that both unit labour costs and productivity will increase with each year. In the course of the next few years, Poland's skilled labour force will be much cheaper than in other EU member states.
At a time when unemployment stands at over 17% (at the end of July 2002) there is no shortage in Poland of highly skilled workers. As a result of numerous redundancies of middle-ranking managers and cuts in their pensions highly trained managers in Poland may be recruited without any need for them to be "bought up" from current employers. The supply of highly skilled labour will also increase with the entry on the market of each new generation of college graduates seeking interesting work.
On the plus side, accompanying the creation of a pro-investor environment has been the gradual liberalization Poland's labour market. In July 2002 changes were made to the Labour Code, the aim of which was to increase the flexibility of the employment market and reduce costs for employers.
One alarming trend which may have a negative impact on Poland's economic stability and its ability to attract foreign capital is increasing social dissatisfaction with the country's very high unemployment rate. Opinion polls show that public support for the government and the governing coalition has been falling gradually since the beginning of 2002. At the same time, support for the radical, populist party lead by Andrzej Lepper - Samoobrona, has been steadily increasing. Opinion polls indicate that it has become the third largest political force in Poland.
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