This Issue Back Issues Editorial Board Contact Information


An Interim Report
on the Polish Economy

Leo V. Ryan, CSV,
and Richard J. Hunter, Jr.

On 30 January 2008 the Financial Times reported that there were five main “economic drivers” at work in the Polish economy in 2007–2008: strong investment, including that from abroad; a major increase in EU aid that came with accession but has yet to start flowing in any real terms; the heavy boost to infrastructure spending that “Brussels” will help finance (including expenditures linked to hosting the 2012 European football championships[1]); rising employment and wages, especially among the current cohort of young people in their twenties; and the growing contribution of Polish “migrant workers” bringing money home.[2]

Both 2006 and 2007 can now be considered as “banner years” for the Polish economy. Poland’s GDP in 2006 increased by 6.2 percent. GDP per capita, measured in purchasing power parity (PPP), now stands at $16,200.[3] According to data released by GUS (Central Statistical Office), growth for 2007 registered an increase of 6.5 percent.

One of the reasons for this sustained economic growth may be attributed to developments in the political arena: both of Poland’s major parties, PO and PiS, are centrist by world standards. The “conservative-liberal” Civic Platform (PO) won an unexpectedly decisive victory in the parliamentary elections held on 21 October 2007. While the PO fell short of winning an absolute parliamentary majority, it nevertheless claimed a clear mandate for change in the political arena. The PO took 41.39 percent of the vote (adding 76 seats to its 2005 total), to 32.16 percent for the PiS, 13.2 percent for the Left and Democrats (LiD), and 8.93 percent for the Polish Peasants’ (People’s) Party or PSL. As a result of the elections, a coalition of Civic Platform (with 209 seats) and the Polish Peasants’ Party (with 31 seats) formed a government with a working majority in the Sejm.[4] The overall election turnout was 53.79 percent—the highest percentage of voters in the last six parliamentary elections. In the Senate, the PO holds 60 seats and PiS 39, with one seat occupied by an independent. The PO is thus in a position to introduce and pass legislation quickly, something that PiS was unable to accomplish owing to its awkward coalition partners LPR and Samoobrona (neither party made it to the Sejm in October 2007).

The PO committed itself in its election campaign to lower taxes, raise public-sector salaries, and bring down the budget deficit. So far, it has not accomplished any of these goals. It is not clear how far the PSL is also committed to these objectives. The new Minister of the Economy and Deputy Prime Minister is populist Waldemar Pawlak of the PSL.

Economic Indicators and Factors[5]

“In Warsaw, shoppers lug home bags stuffed with Hugo Boss suits and Prada dresses below the glass skyscrapers and cranes that tower over construction sites that are swarming with workers.”[6] “The main driver is domestic demand with Polish consumers spending money as never before, while companies are expanding investment at nearly 20 percent a year. Construction is booming, as are consumer services from drycleaners to travel agencies.” [7] These two comments may sound like an exaggeration, but they reflect the overall upward trend. The Central Statistical Office (GUS) likewise attributed the high and continued growth in the Polish economy in 2007 to strong production and construction, particularly in residential building. [8] The National Bank of Poland (NBP) reports that investment spending in 2007 increased by 20 percent over 2006. Because of two factors—the influx of foreign direct investment and the infusion of European “structural funds”—investment should continue to grow by 10 percent in the near term. In fact, Poland still maintains a reservoir of 19 billion zloties to spend from EU funds it was allocated for the 2004–2006 period. Polish businesses and consumers spent a total of more than 8 billion dollars on consumer hardware, software, and IT services in 2007—a figure that is expected to rise by 12.8 percent annually over the next five-year period. Business bankruptcies were down by 24 percent over 2006. Overall, domestic consumption rose by 8.6 percent in 2007 and is projected to rise by 6.5 percent on average in the near future. Retail sales in 2008 are expected to rise by 15 percent over 2007. However, goods will be more expensive in 2008 than in 2007. The Ministry of Finance projects that prices will rise 2.3 percent in 2008, with cigarettes (+15 percent) and electricity (+5–10 percent) leading the way.

Other economic indicators are also worth noting. Poland’s current labor force amounts to 17.01 million. The breakdown of the labor force indicates 16.1 percent involved in agriculture; 29 percent in industry; and 54.9 percent in services. As reported by the Economist, “the stock of vacancies in the labor market fell slightly (year on year) in September 2007, causing some observers to conclude that the labor market had peaked.”[9]

The rate of joblessness in Poland, which was 15.1 percent in January 2007, fell throughout 2007, and in fact had receded to 11.2 percent in November 2007. In June 2008 joblessness fell to 9.6 percent nationally[10]. While the minimum wage is scheduled to rise to 1,112 zloties, or 453 dollars per month,[11] costs incurred by employers will actually fall by 2 percent as obligatory social insurance contributions made by employers on behalf of their employees will be lowered from 6.5 percent to 4 percent of employees’ gross monthly wages, with employees individually paying 1.5 percent of their gross wages as a social insurance contribution.

The current labor market presents quite an anomaly. While unemployment is still high and may rise, the Warsaw Voice reports that businesses “will have problems recruiting new employees.” It should also be noted that the average gross monthly wage is expected to rise by 3.6 percent from 2007 to 2,843 zloties (approximately 1,141 dollars per month), or 13,688 dollars per year. State-funded pensions are set to rise by 5.6 percent in 2008. On the negative side, 17 percent of Poland’s population is claimed to fall below the poverty line.

In 2007 stock market turnover reached an all-time high of 482 billion zloties, an increase of 40 percent over 2006, and market capitalization soared to 1.08 trillion zloties, including 510 billion zloties in domestic stock and 570 billion in foreign stock. At the end of 2007 a total of 351 companies—including twenty-three foreign companies—were listed on the Warsaw Stock Exchange’s main market,[12] with eighty-one new companies marking their debut in 2007 alone.[13] In addition, in the first three quarters of 2007, Poland’s ten biggest banks posted a combined net profit of over zl.8.5 billion.[14]

Export growth was more rapid than import growth for the first time since March 2006, contributing to a slight year-on-year fall in the current-account (trade) deficit. Since Poland joined the EU, its overall exports have grown by more than 30 percent, with exports to Russia alone increasing by more than 75 percent. During this time Poland’s trade balance has continued to improve, with export growth significantly outpacing import growth. The share of foreign trade in terms of Poland’s GDP is nearly 75 percent. Poland’s top three export partners are Germany, France, and Italy. The main commodities exported are vehicles, machinery, electronic equipment, furniture and beddings, and mineral fuels and oils. Poland’s top three import partners are Germany, Russia, and Italy. Poland mainly imports machinery, mineral fuels and oils, electronic equipment, vehicles, and plastics,[15] categories that indicate strong cross-border trading policies.

Outlook for 2008-09[16]

The prospects for political stability have improved following the victory of the popular Civic Platform (PO) in the October 2007 parliamentary elections. The new government of Prime Minister Tusk enjoys good short-term prospects, but populist demands from the Polish Peasants’ Party (PSL), the junior member of the coalition government, may mean that the government may not survive a full five-year parliamentary term. The Tusk government is likely to adopt a more liberal approach to economic policy than did its predecessor, but radical changes in approach are unlikely.

Poland also seems to have entered a period of economic stability. The Tusk government will be more positive about Poland’s entry to European economic and monetary union (EMU), especially the adoption of the Euro. Economic growth is set to slow from an estimated 6.5 percent in 2007[17] to 5.2 percent in 2008 and 4.4 percent in 2009, as external demand weakens and tighter monetary policy in the form of an increase in key interest rates to 5.25 percent by the Monetary Policy Council (RPP)[18] weighs on domestic demand. Rapid wage growth and higher food prices will push up consumer price inflation from an estimated 2.2 percent in 2007 to 3 percent in 2008 (previously estimated 2.8 percent).[19] Weaker demand pressures should allow inflation to fall slightly in 2009. The current-account deficit will again continue to widen gradually, rising from an estimated 4.3 percent of GDP in 2007 to 4.9 percent of GDP in 2009.

Some Positives and Negatives

The Federation of European Employers is “bullish” on Polish prospects. The FedEE provides an objective evaluation of investment risk in twenty-seven European Union countries, plus Iceland, Norway, Switzerland, and Turkey from the perspective of human resources. The survey is based on fifteen individual factors relating to labor supply, human capital, employee relations, inflationary pressures, labor costs, and labor flexibility. Poland ranked number one in the “Top Five Category” in 2007, above Denmark, Slovenia, Switzerland, and the United Kingdom. Poland’s only negative score was found in its level of Internet skills.[20]

This is not to say that there are no negatives on the horizon. According to the World Bank’s Doing Business Survey 2008, Poland slipped to seventy-fourth place among the 178 countries in the survey in terms of the overall ease of doing business. Surprisingly, Poland ranked below Estonia (17), Georgia (18), Latvia (22), Lithuania (26), Slovakia (32), Armenia (39), Hungary (45), Bulgaria (46), Romania (48), and the Czech Republic (56). According to the report based on ten business regulation indicators, potential areas for improvement included elimination of minimum capital requirements, speeding up of building permits, and expanding online tax payments.[21] In addition, Poland also ranked sixty-first in the world in the Corruption Perception Index (CPI)—ranking behind Slovenia (27), Estonia (28), Hungary (39), the Czech Republic (41), Slovakia (49), Latvia (51), and Lithuania (tie for 51).[22]

Overall, the past nearly twenty years of transition in the Polish economy (1989–2008) have been successful. As Poland continues to progress as a normal (not occupied by the Soviets) country, future challenges and opportunities will no doubt arise. What does seem clear is that the progress that has been achieved is substantial and that Poland’s “March to the Market” is irreversible. Poland seems poised to continue on its successful path so that the dysfunctions of communism will eventually become a memory.

1. Konrad Bagiński, “Spur to Action,” Polish Voice, December 2007, p. 5 (outlining expected improvements in roads, airports, trains, hotels and tourism, and stadiums as a result of Euro 2012).
2. “The Polish Central Bank said the two million Poles who left home to work elsewhere in Europe sent home at least £3 billion ($4.2 billion) in 2007 via money orders and electronic financial transactions,” Allan Hall, “Poles send home £1.8 billion to start a boom in Warsaw,” Daily Mail (online), January 5, 2008.
3. The 2007 CIA World Factbook places Poland’s PPP for 2007 at $14,100, with a ranking of sixty-third place in world economies. See (accessed 10 June 2008). The United States ranks ninth, with a PPP of $43,500.
4. Judy Dempsey, “Cabinet takes shape in Poland,” International Herald Tribune, 15 November 2007, p. 4; Witold Žygulski, “New Government, Old Conflicts,” Warsaw Voice, 25 November 2007, pp. 6–7.
5. Andrzej Ratajczyk, “Economy: Optimistic Forecasts,” Warsaw Voice, 13 January 2008, p. 27. Statistics were also drawn from the CIA Factbook (online), February 2008,
6. Ryan Lucas, “Consumer boom spurs Polish economy,” Boston Globe online edition, (11 June 2007).
7. Stefan Wagstyl, “Report-Poland,” Financial Times, 12 December 2007, p. 2.
8. “Information on socio-economic situation of the country—January 2008,” 25 February 2008,
9. “Country Forecast,” Economist Intelligence Unit, 14 November 2007.
10. Donosy, no. 4699, 4 July 2008.
11. On 15 June 2008 the NBP exchange rate was 1USD=2.18904 zloties. In July 2008 the dollar fell further and could only buy 1.99 zloties.
12. Warsaw Stock Exchange, “Information and Statistics,” (accessed 10 June 2008).
13. Jan Cienski, “Warsaw has designs on being central European financial hub,” Financial Times, 15 January 2008, p. 25. The Warsaw Stock Exchange is itself a candidate for privatization in 2008; 98 percent is currently owned by the Polish government. “Poland weighs bourse sale,” International Herald Tribune (online), 8 January 2008.
14. Michał Jeziorski, “Banking Bonanza,” Warsaw Voice, 13 January 2008, p. 29. The article contains a description of the changes that have occurred in the banking sector since the early 1990s. For a listing of the major Polish banks, see “Poland Banks and Banking Sites in Poland,” at (accessed 15 June 2008).
15. Federation of International Trade Associations (FITA), (11 February 2008).
16. “Country Forecast,” Economist Intelligence Unit, 14 November 2007.
17. Jan Cienski, “Polish economy grows 6.5%,” Financial Times (online), 30 January 2008.
18. The Monetary Policy Council (Rada Polityki Pienięžnej, RPP) is a body of the National Bank of Poland. In conjunction with the budget presented by the government, the MPC sets the bases of monetary policy. It sets the level of the NBP’s interest rates, the rules and levels of bank’s reserve obligations, and sets an upper limit on obligations resulting from loans taken by the NBP in foreign banking and financial institutions. The MPC is composed of the chairman, who is the president of the NBP, and nine other members, selected in equal parts by the President of Poland, the Sejm, and the Senate. Members of the MPC are chosen to serve for six-year terms. The RPP functions in a similar fashion to the Federal Reserve Board in the United States: <>.
19. The Financial Times, however, predicts inflation may reach 4 percent. The International Herald Tribune reported that inflation had reached 4.3 percent in January 2008. For a look at annualized inflation rates for January in the EU’s Eastern European Nations, see “A look at inflation rates across EU’s Eastern Europe nations,”, as of 19 February 2008.
20. “Expanding into Europe: Are employees making the best decisions?” (accessed 14 February 2008).
21. World Bank Group, Doing Business 2008 (2008). The ten categories include: starting a business; dealing with licenses; employing workers; registering property; getting credit; protecting investors; paying taxes; trading across borders; enforcing contracts; and closing a business.
22. The index defines corruption as the abuse of public office for private gain. It measures the degree to which corruption is perceived to exist among an individual country’s public officials and politicians. The CPI is a composite index, drawing on 14 polls and surveys from 12 independent institutions, which gathered the opinions of businesspeople and country analysts. The scores range from ten (squeaky clean) to zero (highly corrupt). A score of 5.0 is the number Transparency International considers the “borderline figure distinguishing countries that do and do not have a serious corruption problem.” Poland’s score was 4.2 in both 2006 and 2007: (the website of Transparency International).

Back to the September 2008 Issue
The Sarmatian Review
Last updated 12/5/08