Executive Search in Poland – 2020 Outlook

Poland among fastest growing EU economies

Poland is now among the fastest-growing economies in the European Union (EU). Household consumption, fueled by expected increases in budgetary expenditures, a tight labour market, and rising wages, continues to grow. This, together with continuing low interest rates and the execution of EU funds–related investments, will help sustain Poland’s economic growth prospects in the near term. 

The unemployment rate in Poland is the lowest 25 years at 3.5%.  It is projected to settle at 4.342% in Dec 2024.

The two main challenges ahead for Poland are a shortage of labour and expansionary measures encouraged by the political calendar. 

The shortage of labour will eventually weigh heavily on potential GDP growth and be exacerbated by the early retirement of an increasing share of the workforce. Poland is at an advanced stage in its demographic transition; its working-age population is already shrinking and is forecast to further decline in the coming years. 

A dense political calendar with EU, presidential, and general elections taking place has inspired a range of expansionary policies. Proposed measures to increase social benefits, lower tax rates, and inflate the cost of pension payments will put pressure on public finances. Due to the political cost of reversing these policies, they will weigh on Poland’s fiscal position. 

Poland is among the top European markets for foreign direct investment (FDI), according to a new report by multinational professional services firm Ernst & Young. Foreign Direct Investment in Poland is expected to be 212,300 EUR Million by the end of this quarter, according to Trading Economics global macro models and analysts expectations. In the long-term, the Poland Foreign Direct Investment is projected to trend around 221,500 EUR Million in 2020.

The industry sector contributes 28.9% of GDP and employs 31.1% of the workforce. The country’s main industrial sectors are machine manufacturing, telecommunications, environment, transport, construction, industrial food-processing and IT. Some of the traditional sectors have been in decline, such as the steel and shipbuilding industries. The Polish automobile industry is mainly export-oriented and has been highly resistant to the effects of the economic crisis.

The tertiary sector (services to consumers) represents 58.1% of GDP, employing about 58.6% of the active population. The sector is booming, especially for financial services, logistics, IT and tourism. This sector in particular has seen impressive growth in recent years.

Economic Outlook

Poland’s GDP growth may reach 4.3% in 2019, driven by persistently strong domestic consumption and higher-than-expected investments. Household consumption expenditures are set to continue to grow, fueled by an expansion of the Family 500+ program, additional pension payments, and a strong labour market.

However, the impact of new social programs on consumption is likely to be smaller than the initial effects of “Family 500+” due to rising prices (the consumer price index is likely to reach almost 3 percent in 2020). As a result, the contribution of private consumption to GDP growth is expected to fall in the coming years. Low interest rates and the low availability of EU funds are expected to support private investments. 

Despite the uncertain economic perspectives of Germany and the United Kingdom (which together account for approximately a third of Poland’s exports), exports expanded by 4.9% in the first half of 2019 and are expected to result in a positive trade balance. In the medium term, economic growth is forecast to shrink to 3.3% in 2020 and in 2021 but regardless, rising real incomes are expected to lead to further declines in poverty. 

Economic risks will be much more intertwined with political ones in 2020, the year of the presidential election. While Polish presidents do not hold as much power as their French or US counterparts, they are, constitutionally, more powerful than most heads of state in the region. On top of that, the intensifying partisanship of Polish politics creates space for the president to carve out a bigger role than one would assume from reading the Polish constitution. 

PiS, the right-wing populist party, will throw everything at ensuring the re-election of incumbent Andrzej Duda or risk its legislation machine grinding to a halt. The ruling party does not have a majority to overturn a presidential veto and, should an opposition candidate win, he or she is all but certain to block PiS’ governing programme, not least in retaliation for years in opposition.

On the EU front, PiS will remain at odds with Brussels over a number of issues with the most important being the ongoing tussle over the so-called judiciary reform — nothing less than a subjugation of the courts to political control. There will also be heated disputes between Warsaw, the EU, and prominent member states such as France over the bloc’s climate policy, the 2050 ambition of climate neutrality in particular. 

Conclusion: The risks to Poland’s continued success are: Population aging, demographic decline, low level of innovation and low investment, political calendar.