The European Commission’s latest economic forecast ranked Poland as the fastest developing EU member state in 2012, although it revised the country's growth estimate downwards for 2013. But analysts appear much more optimistic than the EU executive and insist that the Polish economy will do even better next year.
The Commission's Spring economic forecast, unveiled on 11 May (see background), brought substantial change to the previous estimate published in November 2011.
The fastest GDP growth in the European Union had been expected in Lithuania (3.4%), followed by Estonia (3.2%), Latvia and Poland (2.5% each).
However, growth prospects in Baltic countries were reduced significantly compared to autumn forecast, with Lithuania lowered by 1 percentage point, Estonia by 1.6 and Latvia by 0.3, to 2.2%.
In contrast, the Polish GDP forecast was raised to 2.7% and the Commission believes that it will grow at the fastest pace in the EU. The forecast is also above the 2.5% prediction by the Polish government.
Olli Rehn, the EU's Economic and Monetary Affairs Commissioner, said at a press conference on 11 May that Poland has been the only EU member that didn’t suffer from negative GDP growth throughout the crisis that has roiled markets for nearly four years.
The forecast is in line with predictions made by financial institutions and banks.
“We forecast that the economy will grow 2.4% (unchanged from our recent outlook), but for the following reasons the risks have shifted mostly to the upside, suggesting that Poland may do even better than our projected 2.4% GDP growth rate,” Mads Koefoed, Macro Strategist at Saxo Bank, told EURACTIV.
“In 2013 we expect the Polish economy to continue to be a solid performer in Europe with growth of 3% driven again by domestic demand, consumption in particular, and a rebound in trade with key partners such as the eurozone,” Koefoed said.
He substantiated his optimism with rising domestic demand and consumption and investment, related to the Euro 2012 football championship, which Poland and Ukraine are co-hosting from 6 June to 1 July.
Austria's Erste Group, one of the largest financial services providers in Central Europe, was also optimistic about Polish growth this year.
“We expect the growth of Polish economy to slow down to 2.8% this year from 4.4% recorded in 2011. Even though the budget deficit reduction from 5.1% of GDP in 2011 to 2.9% this year seems too ambitious, a deeper look shows that such an adjustment is manageable without any significant negative shocks to the economy,” said Petr Bittner, analyst from Erste Group.
The European Commission downgraded the prediction for the Polish economy growth for 2013 by 0.2 percentage points, to 2.6%. Apparently, the EU executive sees upside risks that a persistently weak currency would further boost exports and enhance import substitution. On the downside, it estimates that a withdrawal of foreign funding from the region could adversely affect credit markets for private and public borrowers, leading to lower investment and consumption.
But economists argue that the growth in 2013 will be much higher than 2.6% predicted in the spring forecast.
Bittner told EURACTIV that due to the end of fiscal consolidation process, the Polish economy should expand by 3.3%.
Piotr Maciej Kaczy?ski, research fellow at the Centre for European Policy Studies (CEPS), a Brussels think tank, called the Commission’s forecast for 2013 “meaningless”, as in his view issuing economic predictions for more than one year forward is not realistic.
“For example, prognosis for Greece is totally far-fetched. Of course, we can assume that Greeks will find their Mario Monti and reach the 2013 forecast of 0% growth, but that is just building castles in the air," he told EURACTIV in a phone interview.
EU funding as source of growth
Looking deeper into the Polish economy's performance, Kaczy?ski saw EU regional funds as a key driver of GDP growth.
“Polish growth is heavily influenced by the European structural funds. Public investment ratio in the Polish GDP is enormously high – much higher that, in example, in Portugal or Spain during their period of prosperity. Fortunately, those public investments will be followed by private investments that will keep Polish growth at a high level during next years,” he said.
The CEPS researcher also argued that public investments would generate private investments – for instance, newly build highways will attract investors to build nearby logistics centres. The other reason for the rise in private investments, according to Kaczy?ski, was the “excellent opinion” among foreign investors about Poland’s capacity, in difficult times for Europe, to stay away from recession.
To put the Polish growth in a wider perspective, Kaczy?ski noted that the country’s GDP measured by purchasing power per capita between 2007 and 2010 rose by 12.5%, while the average for the EU as a whole fell 2%.
Poles should stay alert
On the negative side, Kaczy?ski warned that the good shape of the Polish economy could backfire on the negotiations over the EU budget for 2014–2020.
“One may argue that Poland doesn’t need a lot of help due to its good performance,” he said.
However, he pointed out that Poles must not rest on their laurels and improve on areas where they still lack competitiveness. For instance, the difficulty of starting a business is clearly reflected in the World Bank's Doing Business ranking where Poland ranks 62 out of 184 countries.
The 2012-13 spring forecasts have set out expectations on growth, inflation, employment and public finances for each state individually, as well as the aggregate expectations for the EU and eurozone.
In its interim forecasts delivered in February, the Commission said the euro area was in a mild recession with signs of stabilisation, and said modest growth should return in the second half of the year.
According to the spring forecast released on 11 May, real GDP is projected to stagnate this year in the EU and to contract slightly in the euro area. Together with an expected acceleration in global growth, a gradual recovery is forecast to start in the second half of the year and gather speed in 2013.
All in all, GDP is projected to stagnate in the EU and contract by 0.3% in the euro area this year, and to grow by 1.3% in the EU and by 1.0% in the euro area in 2013.
According to analysts, the focus of the spring forecast is squarely on Spain.