Poland 2015-2019

How does Poland’s economy compare to the rest of the region

Poland 2015-2019 2019-08-14
Poland’s economic position in the region has not improved since PiS came to power. Central and Eastern Europe has made gains as a whole due to external factors.

GDP per capita relative to the EU15 average

Poland 2015-2019

Poland stands out more from the West than other countries in the region. The PiS term of office, now drawing to a close, coincided with a period of economic revitalisation in Europe – the average GDP dynamics in the EU in 2015-2018 exceeded 2 per cent (0.7 per cent in the previous four years). In the Czech Republic, the peak of the economic cycle occurred in 2015 (GDP increased by 5.3 per cent), in Romania in 2017 (+7 per cent), while in Poland this occurred in 2018 (+5.1 per cent). Consumption was the main driver of growth, although investments have played a significant role in Hungary and Slovenia in the last two years. The gap between the eastern region and the so-called "old" EU (EU15)* remains large but is diminishing. Slovenia is the leader on this path, where per capita GDP already exceeds 61 per cent of the average for these countries. Lithuania is also catching up with the West (an increase from 35.5 to 40 per cent in the period from Q1 2016 to 2019). Poland and Hungary have reduced their gap with the old EU by only 3.3 percentage points.

Labour force participation rate among people aged 15-64
Only in Poland and Hungary is the difference in economic activity of men and women increasing. At the beginning of 2019, the unemployment rate was lower than at the beginning of 2016 in all the countries of the region – in Lithuania by 25 per cent, Poland 40 per cent, and the Czech Republic by over 50 per cent. Revenues from PIT and VAT have increased. A favourable situation in the labour market stimulated increasing rates of economic activity: between 2015 and 2018, the greatest increase in this indicator was in Hungary (3.3 percentage points), while it came out lowest in Romania (1.7 percentage points); in Poland, it was up by 2 percentage points. Among women, Lithuania has the highest levels of professional activity – almost 76 per cent of working-age women are active there, only by 3 percentage points less than the rate for men. In the Czech Republic, Lithuania and Slovenia the difference in activity between the sexes has decreased, while in Hungary and Poland it has grown. In the case of Poland, it grew from 13.4 percentage points to 13.7. Poland is unique in deciding to lower the retirement age in recent years (to 60 for women and 65 for men), while in most countries of the region – as a result of ageing of their societies – it has gradually increased: in Lithuania, the Czech Republic and Hungary it will be 65 years for both sexes, while Romanian women will have to work until the age of 63.

Public finances balance sheet as a percent of GDP
All governments benefited from the boom. The condition of public finances throughout the entire region has been good due to the favourable economic situation on the labour market, thanks to which revenues from PIT and VAT have increased. The Czechs used this to accumulate public savings, reducing expenses and investments, and running a VAT-sealing programme similar to Poland; Lithuania followed a similar strategy. In Poland, however, expenditure increased along with revenues, so the result for public finance remains negative. Hungary increased its deficit, despite the boom, by reducing the burden on employees and increasing public investment. Public finances in Romania are faring worst of all, with tax revenues low and spending – for the most part on public sector salaries and on social benefits – high and growing.

Investments as a percent of GDP
Investment has halted throughout the region. In 2015-2017, the role investments played in GDP decreased and remained below the EU average. The biggest fall was seen in Poland and Romania (-2.4 percentage points each), the smallest in Hungary and Slovenia, while the Czechs invariably invested the most relative to GDP. Businesses limited their investments due to the increase in uncertainty in the global economy, the expected slowdown and rising costs. The countries of Central and Eastern Europe are still not very innovative: they are all below the EU average according to innovation indices, as well as in terms of per capita expenditure on research and development. Per capita, the Slovenians spent the most on research and development (EUR 388 in 2017, as opposed to an EU average of EUR 620), while Romanians spent the least – EUR 48. Research expenditure in Poland in 2017 was EUR 127 per head (up from 113.6 in 2015).

Export of goods as a percent of GDP
Economy less open in Poland than in Hungary. Foreign trade amounted to 88 per cent of Poland’s GDP in 2018 (it was 80 per cent in 2015), while in Hungary it was 136 per cent (slightly less than in 2015); in Slovenia, it amounted to 133 per cent. Only the Czechs and Slovenes maintain a positive result in the trade in goods. In the services sector, on the other hand, all the countries mentioned export more than they import. Lithuania is the leader, with the export of services in 2018 exceeding 21 per cent of GDP (an increase of 5 percentage points from 2015). Poland performs worse than, for example, Hungary and the Czech Republic (Polish exports total 12 per cent of GDP, compared to Hungary's 17 and the Czech Republic's 19 per cent). This could, however, be an advantage during a crisis – the Polish economy will be more resistant to external shocks and the effects of any trade war.

the bottom line

Over the past four years, all the Central and Eastern European countries have benefited in much the same way from the improvement of the general economic situation in Europe and in the world. Differences between countries can be seen mainly in public finance – Poland, like Hungary, has increased expenditure, while the Czechs and Lithuanians have held back. Currently, all the countries of the region are facing similar challenges for the coming years: the progressing aging of the population (and, hence, increasing costs of pensions and health care) and global economic slowdown. According to this perspective, reforms which increase economic activity and strengthen the national economy will be key.

* The 15 countries that comprised the EU before 2004 are: Austria, Belgium, Denmark, Finland, France, Greece, Spain, the Netherlands, Ireland, Luxembourg, Germany, Portugal, Sweden, the UK and Italy.

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Hanna Cichy
Head of Business Desk
Hanna Cichy
PI Alert

EU summit: Member States launch discussion on financing joint defence initiatives

State of play

Leaders approved appointments to top posts. At the EU summit that ended on Thursday night, they nominated Ursula von der Leyen for a second term as head of EurCom, former Portuguese Prime Minister António Costa as head of EurCou and Estonian Prime Minister Kaja Kallas as head of EU diplomacy. Italian Prime Minister Giorgia Meloni abstained from voting for von der Leyen and voted against Costa and Kallas. This means that Meloni is preparing for tough negotiations and may demand a high political price in return for his party's support for von der Leyen in her approval in the EurParl. Prime Minister Viktor Orbán voted against von der Leyen and abstained on Kallas.

They adopted the Union's strategic agenda for 2024-2029. Over the next five years, the Union's goals include a successful digital and green transformation by "pragmatically" pursuing the path to climate neutrality by 2050. Another objective is to strengthen the EU's security and defence capabilities.

Von der Leyen spoke of EUR 500 billion for defence over a decade. This was the EurCom estimate of needed EU investment presented by its head at the EurCou meeting. Poland and France were among the countries that expected the EurCom to present possible options for financing defence investments before the summit, such as EU financing of common expenditure from a common borrowing. This idea was strongly opposed by Germany and the Netherlands, among others. In the end, von der Leyen decided to postpone the debate until after the constitution of the new EurCom, i.e. in the autumn. And the summit - after von der Leyen's oral presentation - only launched a preliminary debate on possible joint financing of defence projects.

Poland has submitted two defence projects. These might be co-financed by EU funds. On the eve of the summit, Poland and Greece presented in writing a detailed concept for an air defence system for the Union (Shield and Spear), which Prime Ministers Donald Tusk and Kyriakos Mitostakis had put forward - in a more general form - in May. In addition, Poland, Lithuania, Latvia and Estonia presented the idea of jointly strengthening the defence infrastructure along the EU's borders with Russia and Belarus. Poland is pushing for the EU to go significantly beyond its current plans to support the defence industry with EU funds and agree to spend money on defence projects similar to the two proposals. But EU states are far from a consensus on the issue.

Zelensky signed a security agreement with the Union. The document, signed by President Volodymyr Zelensky in Brussels, commits all member states and the EU as a whole to "help Ukraine defend itself, resist efforts to destabilise it and deter future acts of aggression". The document recalls the EUR 5 billion the EU intends to allocate for military aid and training in 2024 (in addition to bilateral aid from EU countries to Kyiv). It says that "further comparable annual increases could be envisaged until 2027, based on Ukrainian needs" i.e. it could amount to up to EUR 20 billion. Ukraine's agreement with the EU comes on top of the bilateral security "guarantees" Ukraine has already signed with a dozen countries (including the US, UK, Germany, France, Italy). As Prime Minister Donald Tusk confirmed in Brussels, talks are also underway between Ukraine and Poland on the text of mutual commitments on security issues.

PI Alert

KO wins elections to the European Parliament

KO received 38.2 per cent of the vote and PiS 33.9 per cent, according to an exit poll by IPSOS. Konfederacja came in third with 11.9 per cent, followed by Trzecia Droga with 8.2 per cent, Lewica with 6.6 per cent, Bezpartyjni Samorządowcy with 0.8 per cent and Polexit with 0.3 per cent. According to the exit poll, KO gained 21 seats, PiS 19, Konfederacja 6, Trzecia Droga 4 and Lewica gained 3. The turnout was 39.7 per cent.

According to the European Parliament's first projection, the centre-right European People's Party (EPP), which includes, among others, PO and PSL, will remain the largest force with 181 MEPs in the 720-seat Parliament. The centre-left Socialists and Democrats (S&D), whose members include the Polish Lewica, should have 135 seats, whereas the liberal Renew Europe club (including Polska 2050) will have 82 seats. This gives a total of 398 seats to the coalition of these three centrist factions (EPP, S&D and Renew Europe) on which the European Commission under Ursula von der Leyen has relied on so far. The Green faction wins 53 seats according to the same projection, the European Conservatives and Reformists faction (including PiS) 71 seats and the radical right-wing Identity and Democracy 62 seats.