Will Poland slow down in 2017?

The Polish economy abruptly decelerated in the first quarter of 2016. This was mainly due to a slowdown in investment both public and private.

In the second half of the year GDP growth will most probably rebound as the newly started child-benefit scheme dubbed “500+” will drive domestic demand. The outlook for 2017 is mixed, however – there are question marks regarding global sentiment and domestic economic policy with contradictory trends emerging in Poland’s economy.

The headline expectations for 2017 point to a stabilisation of growth at a level slightly above three percent. According to Polityka Insight’s in-house forecasts, Polish GDP will increase by 3.3 percent after growing around 3.5 percent in 2016, boosted mainly by private consumption and public investment. The average figure for 2017 does not look worrisome, but the decomposition of growth rates across quarters shows a significant slowdown in economic activity throughout the year. In the first three months of 2017 economic growth might even exceed four percent only to fall to as low as 2.9 percent in the last quarter. Consumption will gradually decrease as the demand stimulating effects of the “500+” scheme fade and inflation climbs above 1.5 percent diminishing the benefits from wage hikes.

The 2017 economic conditions would be even worse if it weren’t for an expected rebound in public investment outlays. As spending of EU structural funds from the 2014-2020 perspective take off, central and local government units should increase spending. This would help construction companies to get out of recession which has troubled the sector since 2015. At the same time a further increase in residential investment should be expected. Historically low levels of unemployment and interest rates, optimistic consumer expectations, a housing shortage, as well as stagnant prices will stimulate demand for new residential buildings.

The outlook for investment growth in private companies is much more pessimistic. Already in the first half of 2016 – despite high capacity utilisation and business profitability – companies were cutting spending on fixed capital. Furthermore, as indicated by a survey by the Polish central bank, companies are very reluctant to start new investments. Almost one in three companies are withholding projects. Entrepreneurs are afraid of the possible consequences of changes in the government’s economic policy and the anti-business rhetoric of politicians, especially regarding foreign-owned companies. Entrepreneurs’ fears are fuelled by legislation such as the bank asset and retail taxes and by bills introducing more bureaucracy in order to curb tax avoidance.

Foreign investors are on the other hand worried about the anti-EU stance of the current government and its tense relationship with Brussels. International companies are delaying major investments waiting for the situation to settle. They are worried that growing hostility between Warsaw and Brussels could lead to EU funds to be frozen by the EC.

In the last couple of years the Polish economy was driven by growing exports. Today the trend is reversing –in June exports fell at the fastest rate since the crisis, orders from Germany and other eurozone countries being the main reasons for the weak data reading. The outlook for 2017 isn’t any brighter. Increased uncertainty after the British referendum, softer domestic demand in the biggest EU economies, and problems in Italy’s banking sector are making up for the pessimistic forecasts for Polish trade. As a result, net exports will most probably be the main factor slowing down Polish GDP.

The only factor that could sustain the economic growth at the end of 2017 will be public spending. Favourable fiscal conditions – after six years of austerity– allow for the government to increase the budget deficit. If the government decides to further increase retirement outlays and take up other demand-stimulating actions, GDP growth might stay above three percent until the end of the year. This will come at a large cost, however. The increase in the structural public deficit will be a liability in times of global slowdown and it will impose the need for spending cuts maybe as early as in the 2019 election year. Such a scenario will be even more likely, if the government decides to decrease the retirement age back to the 2012 level (65 years for men and 60 years for women). All in all, the economic conditions in the forthcoming years will be much more dependent on the government’s fiscal policy than they have been for the last decade.

Anders IFV is a series of multirole, tracked combat vehicles being developed by the PGZ Group in Poland. It is intended to replace the existing ex-Soviet fleet of BMP-1 infantry fighting vehicles in the Polish Army. The army is expected to replace its BMP-fleet with about 700 to 1,000 Anders vehicles.


Poland reduced by almost a quarter the amount of money to be spent on modern weaponry by 2022 – the revised army modernization plan cuts the funds available for priority programmes. These consisted of high-tech, expensive weapon systems to be delivered by foreign suppliers.

According to MoD statements, the 19 bln reduction in funding by 2022 (from 91 bln to 72 bln) for major defence procurement programmes is a result of lowered budgetary forecasts, inflation and funds moved to build a Territorial Defence Force (TDF). TDF’s cost was initially estimated at ca 2 bln zlotys in the coming years. This was later increased to 4-5 bln, and that’s only for the equipment. The cost of the new service branch is largely unknown, as the pace and scope of the programme depends both on the budget and availability of volunteers. The MoD MinDef plans to form three brigades of the new force in 2017. Rifles, mortars, vehicles, light-guns and personal gear will be delivered by Polish defence sector.

But the ministry does not intend to reduce the overall scale of army upgrades too much. The needs are vast and some remain urgent. The number one priority is air and missile defence. Poland will develop the lowest tier on its own, but will require foreign technology inserts. For medium range (lower tier in US terms) air defence, Poland chose to order upgraded Patriot systems, equipped with network-centric IBCS command system and – in the future – a 360 degrees radar. The LoR for that system was sent to Washington and the contract may be signed as early as mid-2017.

The system will become the country’s largest defence project, worth 30 to 50 bln zlotys (USD 7.5-10 billion) on estimate. A boost to local defence industry, it will also be the greatest burden – delivery schedule ends in 2026. The remaining part of the military purchase plan is to face reductions and delays, however gaps in existing capabilities will not allow for severe cuts. A big question mark is hanging over the multi-role helicopter procurement, initially granted to Airbus, but contested on political ground by the PiS party, now in power. Also the attack-helicopter project, once deemed as priority, will have to wait until the coffers fill up.

  • Marek Świerczyński heads Polityka Insight’s security desk. He has covered defense tenders and international security issues throughout most of his 20-year career. Between 1997-2005 he worked at the Polish Section BBC World Service in Warsaw and London, and later in several radio and television newsrooms. He studied law at the Adam Mickiewicz University in Poznań.


European Union funds should immunise Polish infrastructure investment against a possible economic downturn, but growing delays and a poor spending record could prove to be a problem.

The steady and foreseeable inflow of European funds makes it easier for Poland to continue infrastructure investments even in the case of a severe economic crisis. Most major projects, such as new expressways or trunk rail lines, will be heavily financed by the European Union, up to 85 percent. Poland needs to put all the money up front, but these expenses should promptly be reimbursed.

The most urgently needed projects – such as expressways between Polish regional capitals and upgrading of railways for both passenger and cargo traffic – are unlikely to be cut. Nationally-funded investments include mostly smaller roadworks, particularly those focused on local roads and safety improvements. These expenses could be scaled down, should an economic slump happen, but most likely will not.

Despite the availability of funds, what worries both the construction sector and the transportation companies (particularly in the railway sector) are delays in spending. Until mid-2016– two and half years into the EU multi-annual budget which runs until 2020 – not a single large railway tender has been concluded. It might seem there is plenty of time to catch up but this will be difficult, neither the construction firms nor rail companies can handle investments worth more than around 10 billion złoty per year. The former lack manpower and equipment to build more, while the latter fear that railroads will be closed, causing more delays.

Poland plans to spend 161.4 bln złoty (€37.2 billion) on new and modernised roads and another 65.7 bln złoty (€15.1 bln) on railways by 2022. Roughly half of these investments will be financed from European Union funds. To this end, Poland will receive 27.4 bln euro from the Infrastructure and Environment programme alone, and more money will come from other programmes on top of that. The current plans were adopted by the former government in a last-ditch attempt to win back votes before the 2015 elections, but the current Law and Justice (PiS) administration wants to maintain the same level of spending, although particular projects will be amended.

  • Dominik Sipiński is an infrastructure analyst at Polityka Insight. He also authored a book about airports in Poland. Sipiński holds a MA degree in War & Conflict Journalism from Aarhus University and Swansea University, and a BA degree in European Studies from Maastricht University.


The Polish banking sector has thrived due to its fragmentation and ensuing competitiveness. Now it’s time for consolidation and repolonisation?

For years Polish banks have been leading in Europe in terms of profitability. They were lending more than their counterparts abroad, and their deposit portfolios grew rapidly. Innovations helped curb costs and at the same time won Polish banks international awards. Business was good until 2015, when the sector’s costs soared due to interest rates cuts. The banks also had to cover for deposits lost at bankrupt credit unions (SKOKs) and the SK Bank, finance the Borrowers’ Support Fund (a fund issuing low-interest loans to indebted homeowners), and on top of that to pay an asset tax. Finally the Polish banking regulator imposed capital buffers on banks which used to issue loans in Swiss francs.

As a result the average return on capital in the Polish banking sector plunged from 12.5 percent in 2012 to the current seven percent. Such a drop in profitability pushed some foreign bank owners to leave Poland. This trend was further strengthened by European financial supervisory institutions which required banks to gather more capital. In the end Belgian KBC, Belgo-French Dexia, Greek Polbank and Swedish Nordea have all left Poland.

Currently, at least two banks are for sale: Raiffeisen Bank, owned by Austrian Raiffeisen Group, and Bank Pekao, owned by Italian Uni-Credit. A majority of shares in both of them will most likely be bought by Polish state-owned companies, led by lender PKO BP, and insurer PZU. Such a move is backed by the Polish government, which intends to increase the share of Polish ownership in the banking sector. If Raiffeisen and Pekao are sold, the foreign share of capital in the Polish banking sector will drop from the current 57 to 43 percent. Should that happen, Poles would regain a majority share in the sector for the first time since 1998.

  • Piotr Sobolewski is the financial sector analyst at Polityka Insight. Previously he wrote for Parkiet, Rzeczpospolita and Bloomberg Businessweek Polska. He is a graduate in Finance, Accounting and Insurance from the University of Warsaw.


Poland’s biggest utilities are facing the same challenges as the global energy sector. They are trying to modernise strategies but don’t want to let go of coal.

PGE and Tauron are the two largest energy producers in Poland. Both companies are listed on the Warsaw bourse, but the state holds significant shares and has the conclusive vote in key decisions. In their new strategies, both PGE and Tauron are trying to mimic the transformation which foreign utilities are going through. European concerns are betting on i.a. investment in renewables, smart grids and smart metres, and are upping their spending on innovation. The pace of technological innovation and improvement in services is rapid, so both companies set a short timeframe for their strategies. PGE’s plan lasts until 2020, while Tauron’s extends until 2025.

Both companies plan to shift their focus on customers. They still want to sell them electric power, but also other goods, such as gas or solar panels. In the long-term both also want to service electric cars and specialize in energy storage. Utilities want to invest in energy distribution. Today, it is the safest part of the energy business when it comes to profitability.

But still, for both companies coal is king and rules the Polish energy mix. Even though PGE distinguishes three growth paths – development of nuclear energy, lignite or offshore wind farms, hard coal will remain their main fuel. Tauron’s position is more difficult – the company is heavily indebted and it wants to focus on modernising the existing hard coal power plants. Investment remains the main problem for both firms. Until 2020, Tauron and PGE will spend PLN 54 bln zloty (€12.5 bln), more than twice their current stock market capitalisation. Most of these funds will be spent on power plants in Opole, Turów and Jaworzno. It is clear that these will not turn a profit, but without them serious power shortages could occur.

  • Robert Tomaszewski is an energy analyst at Polityka Insight. A graduate of International Relations at the University of Warsaw, North Eastern Illinois University in Chicago and Radboud University Nijmegen in the Netherlands. He completed also postgraduate studies in Functioning of the Energy Market at the Warsaw School of Economics.
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Written by: Adam Czerniak

Chief economist at Polityka Insight, where he heads the macroeconomic desk and conducts tailored research on wealth, consumers and the housing market. Czerniak is also assistant professor at the Warsaw School of Economics (SGH).