March 30, 2010Polandby EW World Economy Team

Poland Economy

Poland boasts the largest economy in Central Europe, and the sixth largest in the European Union (EU). It is also the largest ex-communist member of the European Union. Until the global recession that followed the collapse of the United States' housing bubble, Poland's economy had an average yearly rate of growth of over 6.0 percent. Since the recession, Poland has shown strong signs of recovery. According to the Polish Central Statistical Office, economic growth had returned to 3.9 percent by 2010, ahead of most other members of the EU.

Economic History

Emerging from the Middle Ages, Poland was a commonwealth monarchy ruled by a king who was also the grand duke of Lithuania. It was one of the most populous European nations in the 16th and 17th centuries. The economy of Poland was dominated by a feudal system based on agriculture. Compared to other Western European nations of the time, Poland remained largely agrarian, and this system of feudal farming worked well for the nation. As such, Poland was Europe's primary domestic source of grain, cattle, and fur.

Although Poland-Lithuania saw many years of prosperity, its fortunes began to decline as a result of protracted political, military, and economic conflicts. As a consequence, the nation was consumed and divided by Prussia, Austria, and the Russian Empire in the late 18th Century.

A second Polish Republic emerged during the period between the first and Second World War The government was a parliamentary democracy for several years, then ultimately became an authoritarian dictatorship for several years before its invasion by Nazi Germany. Much of this political turmoil was wrought by the devastation and economic ruin caused to the region during World War I. Almost immediately after its formation, the Great Depression hit, further weakening the economy. The government responded with a series of public works programs designed to stimulate economic growth and recovery.

Self-styled inter-bellum Poland inherited some major industrial centers, as well as a few coal mines and other natural resources. The nation split into two major industrial areas and invested in major infrastructure improvements including a port, a new city built around a steel mill, and a series of unifying railways.

In 1939, Nazi Germany invaded Poland, effectively ending its sovereignty. Following the war, Poland fell under the control of Soviet Russia, taking on the name the Polish People's Republic. The economy was, as with all Eastern Bloc countries, based on Leninist communism. Poland suffered enormously during the war, and as it emerged from World War II, its economy was a shambles. Germany was supposed to pay significant reparations to Poland, but that promise became nearly impossible after the division of Germany into East and West.

As a result, the Polish economy limped along through much of the 20th Century, borrowing heavily to support its expensive socialist programs. By 1980, the nation teetered on the brink of economic collapse, forced to export virtually all of its production in order to satisfy crippling debt payments to its western creditors. Finally coming to terms with its bleak economic prospects, the nation began allowing reforms, such as small private enterprises. However, the government could not make the types of changes necessary to create any meaningful economic growth, and soon began to feel pressure to open up the economy and assume a democratic form of government.

The modern state of Poland emerged after the collapse of communism in the former Soviet Union and the Eastern Bloc countries in 1989. Since that time, it has steadfastly pursued a policy of economic liberalization which has led to overall very positive results. Private sector business has been encouraged and allowed to blossom, but agriculture has lagged behind due to infrastructural inadequacies. Nevertheless, Poland has made enormous economic strides since its democratization, and is now one of the largest economies in Europe.

Current Economic Situation

Since the global recession of 2009, Poland has returned to a path of economic growth. Although not performing at its pre-recession growth rate of 6.0 percent, its GDP has achieved a respectable 3.4 percent growth that is larger than most other European nations. In 2009, at the height of the financial crisis, most European nations experienced negative growth; Poland managed to retain a 1.6 percent increase in GDP.

The major reasons for Poland's success seems to relate to its large internal market (with a population that is sixth largest in the EU) and a government strongly supportive of business and economic growth. The post-communist reforms have also created a very fertile environment for the Polish economy to grow. Between 1989 and 2007, Poland's economy grew by 177 percent.

Poland retains a low level of public debt (around 50 percent of GDP as compared with the EU average of 90 percent). Poland also adheres to a Keynesian economic philosophy that emphasizes tax cuts and foreign-assistance funded spending over austerity programs.

However, Poland was not left entirely untouched by the recession. In early 2013, unemployment rates in Poland reached nearly 11 percent and eventually grew to 14 percent by February 2014, according to the Polish Central Statistics Office.

According to investment firm Ernst & Young, Poland ranked 7th in the World in terms of investment attractiveness in 2010. Agriculture makes up 3.8 percent of the gross domestic product of Poland, but it employs more than 12 percent of Poland's workforce. Mining, manufacturing, energy, and pharmaceuticals round out most of the rest of the economy, with a small, but burgeoning financial sector taking up the last few percent of GDP.

Economic Forecast

In 2014, the Polish economy grew at the fastest rate since 2011, with an expansion of 3.4 percent. Recent economic indicators suggest that Poland's economy continued to gain momentum in the first half of 2015, with industrial production accelerating in March and business confidence hitting a new high for the year in April.

According to a report by Focus Economics, Poland's private consumption should continue to support its growth throughout 2015. The labor market will continue to improve, as well, and the credit market is expected to expand. Polish exports remain low, but this appears to relate more to the economic health of Poland's trading partners than to anything it is doing. As the partner nations' economies improve, exports should recover, as well. The economy should expand 3.4% in 2015, and could inch up another tenth of a point in 2016.

blog comments powered by Disqus