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
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