Risks and Trends

Decreasing speed – is fast economic growth about to end?

Risks & Trends 2019 Preview 2019-02-15
The macroeconomic outlook at the Risks and Trends 2019 will focus on the prospects of economic growth in Poland.

Preview

Inevitable slowdown. According to Polityka Insight’s forecast, the GDP will grow by 3.2 per cent in 2019 compared to 5.1 per cent last year. The slowdown has been anticipated by economists from the Polish government, international institutions and domestic analysts from the financial sector. Any differences in their outlook include the pace of the slowdown, its extent and main causes. Some indicate investments are no longer growing, others point to decreasing consumption and staff shortages while still to deteriorating economic conditions of key trading partners. The causes and consequences of the expected economic slowdown will be discussed by Poland’s Prime Minister, the President of the NBP and MinFin Marek Belka.

How a shortage of manpower might affect the economy. The working age population in Poland is gradually shrinking, which – alongside rapid economic growth in recent quarters – has led to an increase in the number of vacancies in Polish companies. Until now, this has been partially offset by an inflow of economic migrants from the East, but recent data indicate that the number of new employees is no longer growing. As a result, one company in seven has put a hold on new investment due to staff shortages, and in the wake of a downward trend in employment dynamics, the consumption growth rate has started to decline. Will the shortage of employees continue to hinder the economy in the coming year, will the decreasing market demand help businesses reduce staff shortages?

Will the PPK programme stimulate the stock exchange and investments? Employee capital plans (PPKs) will be launched in mid-2019. They aim to increase the savings rate so that Poles might enjoy higher pensions in the future. They will also allow businesses to gain easier access to capital necessary for investment. The programme will be implemented gradually and will not be mandatory. In addition, it will generate additional contribution costs for employers that are set to limit their margins if the wages grow too fast. As a result, it remains unknown whether and how quickly the introduction of PPK might stimulate the Polish capital market and, consequently, the companies’ investment decisions. What will be more important for businesses in the macroeconomic model – an increase in employment costs or easier access to capital required for investments?

How will the downturn in the eurozone affect Poland? Towards the end of 2018, the German economy was close to falling into a recession, and the entire eurozone is experiencing a slowdown. This is worsened by fears of hard Brexit, the condition of the Chinese economy and the escalation of US trade wars. We will consider to what extent the economic environment is set to affect the exports of companies and the investment activity of international corporations in Poland. What is difficult to predict is the scale of further diversification of the directions of Polish exports in the coming years and the ability of Polish businesses to improve their competitive position.

Will inflation slow down consumption? Rapid economic growth with extremely low inflation, particularly with regard to consumer services that Poland has recently experienced cannot be expected to continue in the long run. Companies are struggling to cope with an increase in personnel costs, but also with rising electricity prices, which leads to a decline in profitability. The upcoming slowdown may be exacerbated by the sudden increase in inflation levels and the related increase in interest rates, which will further slow down consumption. If the slowdown is rapid, inflation will remain at current low levels, because companies will be reluctant to raise prices.

Panellists

Paweł Borys is the head of the Polish Development Fund (PFR) and one of the main proponents of the introduction of the PPKs in Poland. He focuses on the directions of public funds spending as well as on stimulating, both financially and through regulatory steps, the investment of the business sector. Jean-François Fallacher is the head of Orange Polska – one of the largest companies on the Polish market with foreign capital. He has a deep understanding of the investment sector in Poland and closely follows the country’s economic situation. Carlos E. Piñerúa, World Bank Country Manager for Poland and the Baltic states, is strongly committed to promoting long-term, sustainable economic development. He focuses on the investment activity of companies, particularly in the energy sector, and trends in the labour market. A view shared by international investors of the Polish economy will be presented by Mai Doan, director at Bank of America-Merill Lynch, who manages the best team of investment strategists on the debt market of Central and East Europe.

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dr Adam Czerniak
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