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How Poland’s ‘golden age’ of economic growth is going unreported

How Poland’s ‘golden age’ of economic growth is going unreported

During the current global economic slow-down, Poland stands out as a European growth champion. With an uninterrupted pace of high growth averaging 4.2% per annum between 1992-2019, Poland is steadily catching up with Western Europe and has become the seventh largest economy in the EU with a total GDP of €524 billion. Considering its population of 38 million, scarred by a turbulent history and post-EU entry emigration bleed, we think that Poland’s remarkable growth engine is not receiving the attention it deserves.

The strength and resilience of the Polish economy can be attributed to its large domestic market, early and deep economic reforms and prudent policies, with consistent EU strategy being the top priority, serving as an important discipline for political and economic integration. A vibrant entrepreneurial landscape of small and medium-sized enterprises (SMEs) benefiting from a large domestic market and strong competitive advantages in neighbouring European countries is also an important source of growth.

Large inflows of immigrants from Ukraine and Commonwealth of Independent States (CIS) countries have supported the labour market, exports’ competitiveness, the real estate market and domestic consumption. Poland’s resilience was proven during the financial crisis of 2008/09 when it was the only EU country to avoid recession. Since 1989, Poland has increased its GDP per capita almost eightfold to $15,431 (€13,558).

Strong domestic consumption
One of the most important features of the Polish economy is its large domestic consumer market, comprising 61% of GDP, exceeding the EU average and, in this respect, being more reminiscent of the US. In fact, household consumption, driven by a strong labour market and wage growth of more than 5%, is expected to continue to be one of the main drivers of the Polish economy in the mid-term. The government’s policy of significant increases in social transfers is fuelling this growth even further. Family 500+, an important government programme introduced in 2016, has added about 2 to 3% to disposable income per year. In 2019, a new wave of social payments was announced, including an extension of the Family 500 +, amounting to 1.7% of GDP and expected to boost consumption by over 3% in 2020. By extending the Family 500+ programme, a family with two children and average net salaries of £864 per earner will see their incomes rise an additional 7% per month.

Moreover, people under the age of 26 will not pay income taxes, pensioners will see rising pensions and the general population will pay lower income taxes by 1%. Importantly, these transfers do not jeopardize the country’s solid fiscal position with the budget deficit at less than 2% of GDP. These policies are clearly positive for consumption and the retail, real estate, leisure, healthcare and education sectors. This year, we see year-to-date (YTD) retail trade growth in Poland averaging 7% with a potential to accelerate further. As investors, what we like even more is the e-commerce part of consumption, growing by 15% between 2008-2018. We see the asset-light e-commerce platforms of the largest internet company in the country, Wirtualna Polska, growing by over 20% in 2018.

Infrastructure spending
In terms of infrastructure investments, Poland has been the biggest beneficiary of EU funds from 2007 to 2013 and 2014 to 2020, with €102 billion and €106 billion of funds received and to be received respectively for each period. We expect Poland to continue receiving net EU funds at a pace of around 0.8% of GDP per year, even beyond 2020.