Poland’s Growth Defies Euro Zone Crisis
Ask Krzysztof Szymanski, sales director at Tomex, a brakes parts manufacturer, why Poland has seen the fastest growth in the EU since the economic crisis hit in 2008 and he offers a simple explanation.
“Workers in the rest of Europe are simply lazier,” he says. “Poles work harder than almost anyone else in the union and they cost less too. That’s why we’re based here and that’s why our sales are going up every year.”
As EU leaders scramble to save the euro zone and cobble together policies to restore growth, Poland is solidifying its position as the union’s fastest growing economy. In its latest forecast, the European Commission predicted Poland would grow by 2.7 percent this year, the fastest in the EU.
If that comes true it will build on what has been a startling economic performance in recent years. Poland’s economy recorded a 15.8 percent cumulative expansion from 2008 to 2011, a period during which the EU as a whole saw its GDP shrink by 0.5 percent.
Poland is now the most resilient of the ex-communist states that joined the EU between 2004 and 2007—the Czech Republichas slumped into recession , while Hungary is negotiating a bailout with the IMF.
Andrzej Raczko, a former Polish finance minister and now a senior central bank official, says Poland’s performance has been down to strong domestic demand driven in part by consumers who respond to crises by spending rather than saving and a flexible exchange rate that helped buffer exporters. But he also credits a sensible fiscal policy that has brought the deficit under control without killing growth, an inflow of external funding including 67 billion euros ($84.5 billion) in EU funds for infrastructure and a healthy banking sector.
Although there is a bit of bombast in his comments, and of course there is more to the Polish success story than hard work, Mr. Szymanski is backed by some numbers. A recent survey by Coe-Rexecode, the French economic institute, finds that Poles work an average of 1,975 hours a year, more than Germans and a lot more than the French, who clock in at only 1,679 hours a year.
German workers remain about twice as efficient as their Polish counterparts but Polish salaries are only about a fifth of German salaries.
The result has been the rapid formation of a Polish equivalent of Germany’s Mittelstand, of medium-sized, often family-owned companies geared towards exports.
One example is Inglot, a cosmetics company with shops in more than 40 countries, but whose production is located in Przemysl, a small city near the border with Ukraine.
“I would never move to Vietnam or China,” Wojciech Inglot, the company’s owner, declares. “By being in Poland the path from idea to finished product is three to five times faster than if I had a factory elsewhere.”
Poland’s buoyant economyis also drawing foreign investors, from Korea’s LG, which has built a flat screen television factory in Mlawa, north of Warsaw, to carmakers such as Fiat and Volkswagen .
The nondescript low-rise office buildings that surround many secondary Polish cities are also filled with accountants, technicians and human resources specialists that have made Poland one of the world’s most attractive destinations for business outsourcing.
“We were looking for a near-offshore destination and India and China didn’t fit the bill,” says Gareth Richardson, global head of delivery at Rule Financial, a business consulting and IT firm with an outsourcing office in Lodz in central Poland that is adding about a dozen employees a month to its roster.
He says that his Polish workers are more skilled than those he would be able to find in Asia, but cost less than half of what their peers in the UK would cost.
Poland still faces long-term challenges. It needs to not only work hard but also to begin working smarter, economists say. The wage gap with western Europe is narrowing; Poland still spends very little on research and development and its universities remain underwhelming.
Poland has been helped by the fact that it has a large internal market. Exports of goods and services account for about 40 percent of GDP, less than half the rate in smaller and more open economies such as the Czech Republic and Hungary.
Its consumers have continued to shop despite the growing gloom in western Europe. According to the Polish statistical agency, retail sales grew at an annual rate of 7.7 percent in May, helped in part by a rush to buy television sets to watch the European football championshipsbeing co-hosted by Poland.
The slowdown in Europe appears to have had an impact. After expanding at an annual rate of 4.3 percent in 2011, Poland’s growth slowed to 3.5 percent in the first quarter of this year. Business surveys also show that growth will continue to decelerate.
But unlike other parts of Europe there are no signs of recession and there are those who believe that Poland would avoid one even in the event of a collapse of the euro zone.
In a recent study, analysts at Nomura, the investment bank, predicted that Poland would be the great survivor in any European recession that was prompted by a euro zone break-up. “Poland, the clear outperformer, would be the only country in our sample to have positive growth, and we do not see a recession even under this more adverse risk scenario,” wrote Peter Attard Montalto, an analyst with the bank.