Poland – “way to go!”

The New York Times ran an article on the Polish economy and how it can learn from the mistakes of the Irish. There are similarities between Ireland of the 1990’s and Poland with huge amounts of foreign investment being injected into the Polish economy. But Poland, with a population of 38.5 million people, seems to have learnt that countries should not adopt the euro until their economies and labour markets are flexible enough to compensate for the loss of control over exchange rates. During the financial crisis because the currency was still the zloty the Poles could use their currency to assist their economy – a weaker currency makes exports cheaper and imports more expensive. The zloty has fallen about 18% against the euro but this has made Polish products competitive on world markets and insulating Poland from the effects of the sovereign debt crisis. Poland was the only European Union to avoid a recession and none of its banks needed to assisted during the global credit crisis.

But Poland was lucky that, in contrast to Ireland, its banking industry was still small compared with the total size of the economy, with less potential to do damage. Household debt is relatively modest. Poland also benefited from the strong economy in neighbouring Germany, which accounts for a quarter of exports. One risk for Poland is that some of its growth is based on an influx of European Union aid and other one-time factors, like the construction of new stadiums and other projects related to the European soccer championship, which Poland and Ukraine will co-host in 2012. The country is practically one big construction site, with numerous road and bridge projects and public works, including a new subway line in Warsaw.

If those projects are done well and make the economy more productive, they will contribute to growth. If not, there could be a slowdown when the flow of money ebbs. Nor can Poland completely isolate itself from problems in the euro zone. It would be vulnerable to an unexpected slowdown in Germany.

One thought on “Poland – “way to go!”

  1. Pingback: Effects on Poland: Poland – “way to go” econfix | Euro Economy

Leave a Reply

Your email address will not be published. Required fields are marked *