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Invest in Poland: The Economic Juggernaut of Eastern Europe

Investors220px-Wawel_castle should consider an investment in Poland to capitalize on the emerging markets of Eastern Europe. Poland has become the 6th largest economy in the European Union (EU). The Polish economy has grown an average of 4% since the country joined the EU in 2004. It was the only European country that avoided the late 2000s recession caused by the financial crisis in the West. The major challenge for Poland now is to finalize the last reforms necessary to allow Poland to join the Eurozone by 2016.

The EU economy as a whole remains smaller than it was in 2009. Losses from this time period are not expected to be totally recovered until later this year. In contrast, the economy of Poland has grown 16% since 2009.

In the first quarter of 2014 Poland’s economic growth has quickened to the fastest rate in 2 years. This development is the result of record low borrowing costs and a renewed surge in consumer and investment spending. The Gross Domestic Product (GDP) increased 3.3% from a year earlier exceeding most expectations, compared with 2.7% in the last business quarter of 2013. GDP growth for all of 2013 was reported at just 1.6% .250px-EU-Poland.svg

Coat Of Arms Of Poland

Coat Of Arms Of Poland

Poland is set to surpass all former communist countries in economic growth for the rest of this year (3.2%) and most likely next year as well (3.4%). Growth for 2016 is expected to be 3.9%. Economic growth is increasingly being driven by private consumption and corporate investments.

The central bank of Poland has stated that fixed investment increased 6.1% in the first quarter of the year and is predicted to accelerate to 9% by the end of the year. The flow of foreign direct investment (FDI) is $3.4 Billion USD.

In response to the new economic reports coming from Poland, the zloty is strengthening as confidence in the economy and currency of Poland increases at home and abroad. High economic growth and lower inflation will also help the country in the debt market. Inflation for example, fell in April of this year to 0.3%, a 10 month low. The Consumer Price Index (CPI) is expected to see an increase of only 3.7% in 2014. This will keep interest rates low. The drop in the yield for the government’s 10 year bonds is another encouraging sign.

Polish Exports

Polish Exports

Exports are expected to grow by 6% this year and are a crucial aspect of predicted growth in GDP. It is important to note that there is some concern with this sector, since 1/5 of all exports go to Russia and the Ukraine. Another aspect of this relationship is that a significant portion of the energy needs of Poland, are still originating from Russia. This is particularly the case with oil, less so with natural gas. Poland is continuing to attempt to diversify energy imports.

The country has developed a strong domestic market (6th largest in the European Community), a business friendly political class, low private debt, and a diversified export sector. A nation of 38.7 million, Poland is becoming increasingly influential in all European affairs.

Kracow

Kracow

The nominal GDP of Poland was $516 billion USD (United States Dollars) $13,333 USD per capita at the beginning of 2014. In Purchasing Power Parity (PPP) that is in excess of $800 billion (USD). That ranks Poland 21st in the world. That is $21,118 per capita. The GDP by sector is 3.5% in agriculture, 34.2% in industry and 62.3% in services. The average salary in Poland has increased to $1,320.00 USD on a monthly basis. As a result, two thirds of the GDP is now generated in the private sector.

Map Of Poland

Map Of Poland

Unemployment remains stubbornly high but is still rated below the European average. By early 2013 it had reached almost 11%. It has since declined to 10.3%. Eurostat has the rate already in single digits. The labor force at 18 million is sufficiently diversified with 12.9% in agriculture, 30.2% in industry and 57% engaged in the service industry.

The main industries of Poland are food processing, ship building, chemicals, glass, mining coal, iron and steel, as well as machine building. In the Ease of Doing Business Rank, Poland among all the countries in the world comes in at 45.

Exports from Poland totaled 152.78 billion Euros in 2013. That is over $200 billion USD on an annual basis. The main export partners of Poland are Germany with 26% of the total. The United Kingdom follows with 7.0% and the Czech Republic with 6.5%. Next in line is France with 6.0%. Russia, Italy and the Netherlands round out the balance with 5.2%, 5.0% and 4.6% respectively. The majority of exports from Poland are comprised of machinery and transport equipment (37.8%), intermediate manufactured goods (23.7%), miscellaneous manufactured articles (17.1%), food and live animals at 7.6%.

Warsaw Business Center

Warsaw Business Center

Imports to Poland totaled 155.09 billion Euros ($211 billion USD) in 2013. The sector is led by machinery and transport with 38.8% of the total. Intermediate manufactured goods follow with 21.0%. Chemicals come in with 15%, followed by minerals, fuels, lubricants, and related materials at 12.6%. Miscellaneous manufactured articles comprise the remaining balance at 9.0%.

The largest import trading partners for Poland begin with Germany taking 27.3% of the total. Russia is second at 12.2% followed by the Netherlands, at 5.9%. China, Italy, the Czech Republic, and France, constitute the balance at 5.4%,5.2%,4.3% and 4.2% respectively.

Poland maintains a stable outlook for credit risk by the major rating companies of the world. Domestic and foreign risk remain in the A range. This is mostly due to the relatively low rate of public debt at 47% – 55% of GDP depending on how you rate this category. More importantly, it is continuing to decline. In contrast the European average is near 90%. Revenue estimates for 2012 were $89.47 billion USD and expenses came in at $99.54 billion USD. Foreign Reserves totaled close to $100 billion USD at the beginning of 2013.

As a developing nation within the European Community, Poland has received $137 billion USD in structural funds from 2007 through 2013. It is scheduled to receive an additional $142 billion USD from 2014 to 2020.

Wages In Eastern Europe

Wages In Eastern Europe

Why invest in Poland? If you are choosing to open a business inside the country an important consideration will be productivity, and the cost of labor. Levels of productivity for the country has reached 2/3 of Western Europe, but wages remain 1/3 the rate further to the west. It is a substantial cost advantage.

The 2014 Index of Economic Freedom gives Poland a rank of 50. This is one point behind Spain and one point ahead of Hungary. It is ranked 23rd out of 43 countries in the region of Europe. The overall score is 67% in an average of the 4 main indicators. It has moved up 1 point from last year. Respect for property rights have increased to 60%. Government spending is improving at 43.2% and fiscal freedom has increased to 76.1%. In regulatory efficiency, business and monetary freedoms increases of 70.1 and 77.8 were realized respectively. In the open markets category trade freedom has gone up to 87.8%. Both investment freedom and financial freedom increased to 70%. The only declines were in labor freedom and freedom from corruption at 60.4% and 54.8% respectively. Labor regulations are more complicated than in other countries in the region.

Polish Supreme Court

Polish Supreme Court

Over the past 20 years Poland has increased it’s economic freedom score by 16 points, which is a top 20 improvement score among countries. It is now considered moderately free in economic freedom and has held that rank since 2002. Structural reforms are represented by extensive efforts in privatization, trade liberalization, a low corporate tax rate, and a modernized regulatory environment.

Poland will need to continue reform especially with issues concerning the judiciary system and the level of corruption. This will be one way to solidify gains made in economic freedom and ensure progress to even more economic growth.

Poland has also continued to take steps to restore fiscal discipline despite a challenging economic environment.

The top individual income tax rate is 32% and the top corporate tax rate is 19%. There are other taxes that include property and a value added sales tax (VAT). The overall burden in taxes is equal to 32% of domestic output. Public expenditures are equal to 43.5% of the economy. The government has committed itself to a plan of relaxing fiscal rules in hopes of boosting economic growth.

Launching a business in Poland takes only 4 procedures and the cost of completing licensing requirements have been reduced substantially.

Gdynia Sea Towers On The Baltic Coast

Gdynia Sea Towers On The Baltic Coast

Poland has the same low average tariff rate (1.1) as the rest of the EU. In Poland there are few non tariff trade barriers. Although some foreign investment levels for certain sectors of the economy are capped it is not excessive. The financial sector continues to expand. Credit is available for business expansion on market terms, for foreign investors inside Poland. All restrictions on capital flows have been removed and the capital markets themselves have improved dramatically.

Poland has a few additional challenges that will need the to be addressed in the future. Among them is the problem of demography. Poland has one of the lowest fertility rates in Europe and remains an emigration country. Some of the best and brightest continue to leave the country on an annual basis. The most urgent task for Poland will be to reduce the size of its swollen public sector. The size and scope of the country’s bureaucracy has become a drag on economic growth.

View of Warsaw: The Capital Of Poland

View of Warsaw: The Capital Of Poland

An investor will also need to consider where Poland is located. It is on the border between East and West. As a member of NATO (North Atlantic Treaty Organization and the EU (European Community) Poland does have some security assurances. Further integration with the EU will only enhance that. Poland will most likely remain a good location for off-shoring and outsourcing. Overall Poland is a good place to make a calculated investment,especially in the eastern regions of the country.

 

 

 

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