Poland’s Confusing GDP Growth

.

Witold M. Orłowski

About Witold M. Orłowski

Professor Witold Orłowski is Chief Economic Adviser for PricewaterhouseCoopers in Poland, Director of the Warsaw University of Technology Business School and a former Member of the Prime Minister’s Economic Council. In 2011, he was appointed Special Adviser (budget) to the European Commission. He was adviser to Leszek Balcerowicz and Head of Economic Advisory Council to the Polish President, Aleksander Kwaśniewski. Twitter: @WitoldOrowski

The Statistics Office of Poland has just announced that GDP growth in 2016 was 2.8 per cent, which is quite a decent result, by European standards, as the EU Commission estimates only eight (out of 28) EU countries are expected to grow faster, with the Block’s forecasted average being below two per cent.

Seemingly, not a big topic for discussion, but this is not so in Poland. A few of days before the publication of the estimate, Deputy Prime Minister and Minister of Economic Development and Finance, Mateusz Morawiecki, surprised everybody by raising doubts about the reliability of the GDP data from the years 2014-15.

His justification was quite technical. Poland, like every country in the EU, is struggling with the problem of cross-border VAT evasion. The typical method that organised crime gangs use to wangle money from the tax authorities is the VAT carousel fraud. In other words, the creation of a fictional flow of import and export invoices that form the basis for claiming the return of the VAT that, in fact, was never paid.

The Ministry of Finance estimates the stock of fictional export invoices reached as much as 1-1,5 per cent of GDP in 2014 and 2015. As a consequence, the government expects the statistical office to correct the GDP data, reducing past GDP growth.

Is this purely technical problem? Not necessarily. The current government, that took power a year ago, made multiple promises to increase GDP growth, above that delivered by their predecessors (3,9 per cent in 2015). The obvious slowdown of the growth is, therefore, a reason for embarrassment and the government’s doubts seem to be politically motivated.

From a statistical point of view, the doubts about the past growth rates are unfounded. The main reason is that the VAT carousel requires both fictional exports and imports. As a consequence, the impact on the statistical measurement of GDP is negligible, because while the fictional exports decrease it, the fictional imports increase it at the same time.

Putting aside politics, the data requires in-depth analysis. There is no doubt that the slowdown is a worrying phenomenon. To make the situation worse, estimates suggest that the slowdown occurred mainly because of falls in investment, supported by a reduction of the trade surplus.

Needless to say that from the macroeconomic point of view, such a change in the demand structure is quite undesirable. A lower share of investment in GDP normally leads to a slower growth in the longer term, while a smaller trade surplus (or a trade deficit) puts more stress on the financial stability of the country. At the end of the day, slower growth, combined with multiple public spending promises, must lead to budgetary problems.

On the other hand, the situation is not as bad as it may look. Firstly, the fall in investment was caused by a radical drop in public infrastructural investment. There is a rational explanation of this fact. As a significant part of the public investment is co-financed through EU structural funds, the flow of these funds plays a major role in shaping public investment activity in Poland. The change in the EU seven-year budgetary framework, that took place in 2014, is normally connected with a significant, but temporary, decrease in the availability of funds. No doubt, the 2016 public investment in Poland is hurt by this phenomenon.

Prime Minister, Beata Szydło, and Deputy Prime Minister and Minister of Economic Development and Finance, Mateusz Marawiecki (source: kprm.gov.pl)

Secondly, despite slower growth, public finance remains under control, and the public sector deficit, presumably, fits within the Maastricht Treaty’s limits of three per cent of GDP. Thirdly, although Poland’s current account deficit increased, it remains quite low (most likely below one per cent of GDP).

No reason to be worried? Let’s not exaggerate. Falling public investment is accompanied by a stagnant investment from firms. This reflects the low spirits of the business community, caused both by the unpredictable external environment of Poland, as well as the failure of the government to build more confidence in its policies.

The political upheaval does not help, either. If the flow of EU funds increases in 2017, GDP growth may accelerate once again, but some of Poland’s long-term economic development problems need to be addressed, if this growth is to be sustainable.

_______________

The views expressed in this opinion editorial are the author’s own and do not necessarily reflect Emerging Europe’s editorial policy.

RELATED ARTICLES

Hungary and Israel: the Collision of Past and Present

Budapest synagoge

Will Poland Leave the European Union?

polexit

We, the Post-Communist Generation, Have the Skills to Rid of the Past And Create Our Own Future

Hungary’s Nationalist Assault on Free Enquiry

victor orban ceu

The Global Outsourcing Industry — the Rise of the Phoenix

Moldova Falls Victim to Politicising

moldova emerging europe

The EU’s Choice: Fundamental Reform Or Disintegration

Belarus 2020: Turning the Vicious Circle Into an Upward Spiral

CEE — Do We Need a Launch Pad For Our On-Site Tech Intelligence in the Silicon Valley

When Neutrality Isn’t an Option

President of the Russian Federation Vladimir Putin

The Sharing Economy Could Bring New Business Models to CEE

Brexit: Let’s Learn the Lesson and Hope a Better Europe Will Arise

EU Visa-Liberalisation Strengthens Georgia’s Pro-Western Path

georgia emerging europe eu

Regional Relations in the Western Balkans: Moving Beyond Folklore

Bosnia and Herzegovina flag with Serbia flag, 3D rendering

Poland’s Drift Away From Democracy

Defending EU Values in Poland and Hungary

Eu hungary poland

Business Moving Forward with Cautious Optimism — Can Investors Win the Confidence Game?

EU-CEE Is Still Growing at a Healthy Rate

Prague emerging europe

Resignation in Ukraine: War, Revolution, Crisis — Some Things Never Change

Are There Differences Between How Tax Regulations in Poland and IAS Treat Intangible Assets?

Swimpassing Dniester Without Prejudice To Democracy

Parliament of the republic of moldova in chisinau, national flag, stefan cel mare street, spring time with blue sky

A Positive and Modern View of Entrepreneurship

Stuck in Neutral: Georgia’s Constitutional Reforms

Tbilisi Parliament Georgia

How Will Poland Approach the Brexit Negotiations?

The Competitive Edge in Central and Eastern Europe

SOFIA BULGARIA - MAY 5: View of the Ivan Vazov National Theatre in Sofia on May 5 2016. Sofia is the largest city and capital of Bulgaria.

Why Hungary’s New NGO Law Is Harmful for Business

Budapest, Hungary. Aerial view of the old city Budapest, Hungary with river and Parliament Building with cloudy blue sky

Is the Level of Foreign Ownership a Problem in Emerging Europe?

Flags of European countries flying from their capital cities. Viewed from the South.

Azerbaijan: The Rich Get Richer and the Poor Get Nothing

Baku

The GREAT London Food Scene

Bakery in London

Poland: Is it Ready, and is it Time to Adopt the Euro?

Albania’s Election Apathy

tirana albania

Romania Surviving the Waves of Recent Political Tsunamis in Europe

International Women’s Day — Let’s Take Action And Then Celebrate

Impact of Brexit on EU-CEE Not Overstated

theresa may brexit

Where’s My Cheese? – The GREAT British Food Tour 2014

Cheese Shop

The Morawiecki Plan Promises a Brighter Future for Poland

Poland’s Unicorn, Slovakia’s Flying Car and the Future of Europe

Poland’s Capital Saturation Lower Than the Czech Republic’s

deloitte fdi poland

2018 Elections — Vital Decisions for Hungary’s Future

Victor Orban energing europe

PiS Uses Media Control to Bring Poland to Heel

Jaroslaw kaczynski pis emerging europe

Belarusian Journalists Still Face Huge Problems

Partnership is the Key to CEE-Indian Business

The EU’s Benign Neglect Of Eastern Europe

Falling into Old Ways in 2017? Ukraine’s Struggle for Functioning Economic Institutions

Serbia’s New PM Is Cut From a Familiar Cloth

Serbian flag emerging europe

Not All Quiet on the Eastern Front

Global Expansion in the Digital Age

Let’s Stop Wasting Time Redefining our Place in Europe

Czech Republic Renaming Has Real Economic Costs

After Its Significant Rise the Georgian Economy May Now Fall

Panorama of Tbilisi, Georgia in sunset rays. Vivid, saturated, splittoned image.

Old Fashioned Skulduggery Overshadows the Elections in Moldova

CEE-Benefits and Disadvantages of Joining the Eurozone

forint zloty euro

Under Promise, Over Deliver: Prospects for the EU’s Eastern Partnership in 2018

Eastern partnership

Are Labour Shortages Driving Economic Growth?

United or Divided? Europe in the Face of the Challenges of Tomorrow

History as Destiny? Institutional Erosion in Ukraine and Poland

Changing Perspectives and Showing That True Romania is a Vibrant Innovative Country

Prepare for a New Europe

Outsourcing in Germany: Stop Talking at and Start Talking to

Nagorno-Karabakh Conflict Moves from Frozen to Kinetic

Nagorno-Karabakh

The Voice of European Business Must Be Heard Loud and Clear by Brexit Negotiators

How Will Trump’s Visit Affect Polish Politics?

Donald trump

Is the CEE Region About to Steal the Outsourcing Crown From India?

Amazing view on the Taj Mahal in sunset light with reflection in water. The Taj Mahal is an ivory-white marble mausoleum on the south bank of the Yamuna river. Agra Uttar Pradesh India.

Bulgaria Needs a Reform-Oriented Government to Take Full Advantage of its EU Membership

bulgaria emerging europe

E-lifestyle and Cyber Security: Some Views From Estonia

Cyber Security Protection Firewall Interface Concept

After 25 Years of Restructuring, the Romanian Power Sector Is at a Crossroad

Slovenia’s Presidential Election: Pahor Expected to Romp Home

Slovenia flag against blue sky waving in wind

The Right to Water: Who Can Change Today’s Situation?

Measuring Growth of Societies with GDP Alone Shows an Incomplete Picture

A New Division Between Eastern And Western Europe?

The Capital Markets Union: a New Beginning in the European Financial Sector?

China: A Giant That Is Hard to Crack

Examining How a Strong Swiss Franc Could Single-Handedly Topple Poland’s Economy

Europe Needs To Be More Proactive In Embracing Armenia

January Kicks Off an Exciting Year for Emerging Europe

Central and Eastern European Consumers Are Joining the Global Trends for Change

Ex-Transition Economies’ FDI Recovery

dollar euro fdi

Ukraine’s Reputation for Cheap Labour May Not Ring True in the Long-term

LGBT in CEE — A New Acceptance Is Being Born From Migration

Big Fish, Small Fish, Where to Fish? On the Eve of the Fourth Industrial Revolution

Europe at Odds over OPAL and Nord Stream 2

The CEE Region Is Making Advances in Prioritising Waste-to-Energy Projects

Will the New Five-day Visa-free Regime Encourage More Visitors to Belarus?

Is there any prospect of ‘Polexit’?

poland european union polexit

Adam Smith’s Warning for Poland

The Long Tail of Global Expansion

Polish Tax Laws — Fighting a Winning Battle Against Tax Evaders

Poland Needs to Cling to the Eurozone

zloty euro emerging europe

Political Tensions Rise As Croatia Allegedly Breaks the Dublin III Refugee Regulation

croatia migrants

Can Armenia Keep a Foot in Both Camps?

European union armenia russia emerging europe

People Power Reminds the Government of the Rule of Law

Finalising the DCFTA is Expected to Bring Multiple Benefits to Ukraine

Breaking With Imitations of the Past

Poland Challenges the European Identity

Poland emerging europe

How strong is V4?

Viktor Orban

European Volatility Makes Economic Development Slower for Ukraine

Only a United Opposition Can Defeat Poland’s Ruling Law and Justice Party

Classical building of Polish parliament. Warsaw in Poland.

Emphasising the Incongruence Between the V4 Countries

Macron emerging europe

Good Match But Unlikely Marriage

Fiscal Policy Predictability in CEE — It’s Time for Change

Could the West At Least Help Ukraine To Insure FDI Against Political Risks?

Will a Two-speed European Union Side-line the Visegrad Four?

Macedonia’s Controversial Coalition Government

SKOPJE MACEDONIA emerging europe

Czech Own Currency Insures Against Euro Losses

Euro Czech republic emerging europe

A Bosnian Referendum Shows Russia’s Influence in the Balkans—As Well As Its Limits

The Netherlands’ Objection to the Ukraine-EU Association Agreement could be Costly to Europe

Leave a Reply

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