Poland became a high-income nation in a short time compared to other middle-income countries. Growth has averaged a consistent 3.6% over the past decade, according to the World Bank, due to steadily increasing productivity, strengthened institutions, investment in human capital and successful macroeconomic management. In 2018, the World Bank projects growth of 4.2%, which is slightly lower than the 4.6% growth seen in 2017. Other analysts are predicting growth of 4.6% in 2018 and 3.6% in 2019.
Poland has record-low unemployment, which is stimulating wage increases and supporting consumption. Investment is also increasing. However, a tightening labor market is causing some concern over labor shortages, particularly in sectors such as construction and information technology. The country is also planning to invest in social initiatives, which can stimulate spending but can also stall investment.
Poland at a Glance
Poland contributed to the demise of the Soviet Union in 1989, joined NATO in 1999 and became a member of the European Union in 2004. It was also the only European country to show economic growth during the 2009 credit crisis. In 2015, Prime Minister Beata Szydlo’s conservative Eurosceptic Law and Justice Party won a parliamentary majority in 2015, but the government has since clashed with the EU over changes in the judiciary and attempts by the EU to impose mandatory migrant quotas.
A strong manufacturing sector has helped Poland to become the EU’s sixth-largest economy. Poland will prioritize social welfare spending for the next few years, and this decision has lowered the growth projections of investors. Despite the nation's success with structural reforms including trade liberalization, low corporate taxes and a business-friendly regulatory environment, the country needs to invest in its core infrastructures such as road and rail. Poland also needs to address its strict labor code, an ineffective commercial court system that inadequately addresses corruption, bureaucratic red tape and a tax system that discourages entrepreneurs.
Inflation is expected to gradually increase in line with accelerating wages as the labor market tightens further. However, an investment may stall if labor shortages intensify, which they might due to a reduction in immigration, a cut in the statutory retirement age and the effects on female labor supply from the large child benefit program introduced in 2016. There is increasing protectionism in Poland when it comes to trade, and economists are not sure if this will hurt exports or if they will benefit from stronger-than-projected growth in the eurozone.
Despite Poland's strong economy strong in 2018 with increasing output and a declining unemployment rate, the World Bank identifies four areas where Poland has economic challenges to contend with going into 2019.
1. An Aging Society
Poland's population is aging more rapidly than that of any other European country. Thirty-five percent of the population will be over 65 by 2030, according to the World Bank. This situation is expected to further tighten the labor force and demographic shift will create labor force constraints and strain the healthcare and pension systems.
2. Leveraging Technology for Growth
Poland is not keeping up with the rapid pace of global technological change occurring globally. To be competitive, the country must incorporate technology into its approaches for sustainable and inclusive growth. Both will require more and better investments in innovation and people.
3. Increasing Inequality
Third, as overall income levels continue to mimic those of the European Union (EU), Poland needs to address the risk of increasing inequality. The disparities between regions are particularly significant.
4. Sustainable Management of Natural Resources
Poland's growth will need resources, and the sustainable management of natural resources, including water and air quality management, is critical for Poland's continued economic stability. Poland has 33 of the 50 most polluted cities in Europe, and the county must invest in transitioning to a low-emissions economy for the future.
Poland faces challenges from both external and internal factors. Externally, Poland's relationship with Russia, considering that Poland borders both Russia and Ukraine, is uncertain. Additionally, Poland's relationship with the EU and the eurozone's economic future can be a source of strength for Poland or a problem. However, internally, Poland faces complex governance with a reconstruction agenda that is authoritarian and designed to keep the Polish public content rather than tackle the problems in the political system.