Deglobalization is proving popular. The eastern Mediterranean is back in the spotlight over the energy resources dispute. Israel and a few Middle Eastern nations have signed separate peace deals. Bringing along economic recession, Covid-19 has upended life on the entire planet. And last but not least, a new president got elected in the US. Meanwhile, we have seen the rise of technology like never before. We have witnessed remote working become the norm. Buzzwords like “Zoom towns,” “ghost kitchens,” “nearshoring” and “China Plus One” have begun to be part of common parlance in the short term since they have been coined.
MAJOR PUSH NEEDED
The World Bank expects the global economy to expand by 4 percent in 2021. However, the growth will likely be subdued unless policymakers move decisively to control the pandemic and implement business- and investment-enhancing reforms, the top bank says in its January 2021 Global Economic Prospects. It is essential to notice the unprecedented level of government debts, central banks’ balance sheets and all asset bubbles. With that, policymakers will have little room to maneuver a significant crisis if and when it happens.
“While the global economy appears to have entered a subdued recovery, policymakers face formidable challenges – in public health, debt management, budget policies, central banking, and structural reforms – as they try to ensure that this still-fragile global recovery gains traction and sets a foundation for robust growth,” said David Malpass, president of the World Bank. “To overcome the impacts of the pandemic and counter the investment headwind, there needs to be a major push to improve business environments, increase labor and product market flexibility, and strengthen transparency and governance.”
US President Joe Biden signed the $1.9 trillion American Rescue Plan Act into law on March 11. According to experts, the US will drive a sharp rebound in the world economy this year. Still, the strength of the American bounce could unbalance weaker economies, particularly in the developing world. The OECD has revised its forecasts for 2021 as it expects the global output to reach +5.6 percent compared to -3.4 percent in 2020 and projected 2021 global growth to be +4.2 percent and +6.5 percent for the US. The OECD could hit pre-pandemic levels this summer, nearly six months earlier than its last guess. The main reason is a strong outlook for the US. The OECD also said the US economy could be larger in 2022 than it was pre-pandemic. Research from the OECD projects that if US government bond yields improve based on higher growth and inflation expectations, it could cause money to flow away from emerging economies. The issue here is that vaccine rollouts have barely begun in these places and any other financial hurdles could significantly set back these regions’ economic recoveries.
The European economy isn’t that different from the global economy. It is living through a challenging period. Do we see the light at the end of the tunnel? The answer, fortunately, isn’t black or white. Some countries weathered the impact of Covid-19 better during 2020, especially the eastern bloc of the Union, even as other economies like Italy and Spain took a heavy toll aggravating the already fragile recovery after the European sovereign debt crisis of 2010. The Directorate-General for Economic and Financial Affairs of the European Commission forecasts the near-term recovery to be weaker than expected. According to the OECD March forecast, the EU GDP will grow by 3.9 percent and 3.8 percent in 2021 and 2022. The European Central Bank (ECB) estimates the inflation rate to be higher in 2021 at 1.5 percent as against 0.3 percent in 2020 before moderating slightly to 1.2 percent in 2022. However, there is also the risk of deeper scars in the European economy’s fabric through higher budget deficits, central banks’ inflated balance sheets, financialized economies, disrupted supply chains, bankruptcies and long-term unemployment. The market will continue keeping an eye on these projections subject to significant uncertainty and elevated risks.
POLISH CRISIS ‘MILD’
Poland’s economy fared the crisis better than its neighboring countries thanks to relatively healthy household consumptions and a positive trade balance driven by exports and a favorable currency exchange rate mainly against the euro. According to its Central Statistical Office (GUS) report published on February 12, the reintroduction of restrictions in Q4 2020 suppressed economic activity, particularly for the service sector. Despite some good industrial production and retail sales readings during the last months of 2020, Poland’s GDP fell to a seasonally adjusted 2.8 percent year-on-year in Q4 after retreating 1.8 percent y/y in Q3. Nonetheless, Poland’s economic slowdown in 2020 is considered one of the world’s mildest crises. According to the European Commission’s latest forecast, the Polish economy will grow by 3.1 percent and 5.1 percent in 2021 and 2022, even as the National Bank of Poland (NBP) states in its March report that the Polish economy will grow by 4.1 percent and 5.4 percent in 2022 and 2023.
The economic outlook for the rest of 2021 is cautiously optimistic. However, the prolongation of restriction into 2021 will weigh down on economic activities in the first part of the year. The overall economic recovery in 2021 will depend a lot on easing restrictions, reducing the accumulated savings through higher consumer spending, increased confidence and favorable labor market conditions. “The pace of the recovery from Q2 will hinge on the vaccination program … Poland has administered the first dose of a vaccine to 5.8 percent of its population, which is more than in most EU countries. But at this rate – some 88,000 doses administered per day – it will take a further 87 days to administer enough doses to another 10 percent of the population and this may delay the widespread easing of restrictions from Q2,” experts have claimed.
The unemployment rate continues to be low – slightly above 3 percent. However, according to Eurostat, Poland had the second-highest rate of temporary employees (22.2 percent) in the EU in 2019, only topped by Spain (26.4 percent). Furthermore, the IMF forecasts the unemployment rate to increase to 5.1 percent this year and 4.9 percent in 2022, as the NBP forecasts the rate to reach 3.8 percent this year and 3.5 percent in 2022 before falling to 3.3 percent at the end of 2023. The wage growth will remain below the pre-pandemic level and the GDP per capita (PPP) of Polish citizens will continue to be 27 percent lower than that of the EU-27.
Despite expansionary policy and the impact of the pandemic, the debt-to-GDP ratio remains relatively low. However, it saw an increase in 2020, reaching 60 percent from 46 percent one year earlier and should stay around this level in 2021-2022, according to a recent risk assessment released by Paris-headquartered Société Générale Bank. Despite the increase, Poland’s debt rating remains stable, with “A-” reflecting its diversified economy with a track record of steady growth, and a sound policy framework coupled with EU membership. These balance against lower GDP per capita and relatively high net external debt compared with the “A cat. peers,” Fitch has noted.
In January, inflation accelerated to an annual 2.7 percent from 2.4 percent in December and was above the mid-point of the NBP’s target range of 2.5 percent plus or minus one percentage point. The increase in part was caused by rising food prices, introducing a series of energy levies, a sugar tax and a trade tax. According to the IMF forecast, inflation is expected to decelerate significantly in 2021 (2.3 percent) and 2022 (1.9 percent), whereas the NBP estimates the inflation rate to be 2.7 percent at the end of 2021 and 2.6 percent in 2022 before accelerating to 3.3 percent in 2023. However, Eugeniusz Gatnar, Polish economist and rate-setter, was quoted as saying by the Reuters news agency that: “if the number of infections does not increase as a result of the current easing of the restrictions and inflation continues to rise, then we should consider raising rates to 0.5 percent in the second half of the year.” Poland’s benchmark rate remains at a record low of 0.1 percent since the spring of 2019 when rate-setters cut it by 140 basis points during the first wave of the Covid-19.
Thanks to a qualified and competitive workforce, developing infrastructure, resilient banking system, and strong domestic demand along with the strategic position between Eastern and Western Europe, and Russia, Poland remains a desirable destination for foreign investment and doing business. Poland has emerged as a dynamic market over the past 25 years and has become a major actor within Europe, being the tenth-largest economy in the EU. The country proved to be more resilient during crisis times than its neighboring countries in the CEE region. I believe Poland will continue playing a core role in the EU’s manufacturing sector and become the leading player in Europe’s supply chain by being at the core of “nearshoring” and “China Plus One” strategies. Furthermore, the growing community of start-ups like Allegro, InPost and many others will continue to attract the attention of foreign investment. It will help diversify the economy, secure Poland’s leading role in technology advancement and provide high-paid employment opportunities for its workforce.
Now is an excellent time to invest in Poland!