Animal Spirits Poland is Europe’s economic star. Will politics derail it?
Each month John Hulsman examines under-appreciated opportunities around the world, uncovering markets that it would be easy to overlook
A few years ago, I remember leaving a wonderfully Hapsburgian café in Warsaw with a good friend of mine, an expert in the terribly sad history of Central and Eastern Europe. While I was enthusing about how open, how glittering, how hopeful everything in the Polish capital looked in our new post-Cold War world – certainly in comparison to the nightmares that had preceded it – my friend smiled wanly, and said, “The economics are wonderful and transformative as you say, John, but watch the politics. It always trips up a country that is doomed to serve as a highway between Germany and Russia.”
If anything, in the years that have followed, that political risk question mark stands in ever starker relief: Poland has benefitted from a hardearned economic miracle, but its politics make the continuance of that good fortune open to question. But for investors with a good sense of the politics of the region, Poland offers that rarest of things in stultified Europe: a macroeconomic success story with the potential to go on and on.
Poland managed the miracle of its post-communist transition splendidly in the 1990s, enduring years of tough structural reforms that laid the groundwork for its subsequent take-off. Between 1989 and 2007, its economy shot up by an impressive 177 per cent, far outpacing its neighbours. Annual growth rates were spectacular, certainly compared with a moribund Europe, with the country averaging GDP increases of 4 to 5 per cent a year. Even the collapse of Lehman Brothers failed to stop it; Poland was remarkably the only member of the EU not to suffer a recession following the world economic crisis.
The country is blessed with a large domestic market and has had capable, pro-business political leadership for years under former Prime Minister Donald Tusk, who recently left to take over as EU Council President. Tusk’s centrist Civic Platform Party (PO), in power since 2007, has provided the vital ingredient of stability that has so often eluded the country during its tragic history.
Given this, its strong economic fundamentals, close ties to all-important Germany (over 25 per cent of Polish exports go there), and largesse from the EU (Poland remains the largest recipient of EU funds, eligible for up to €105.8bn in the new EU budget for 2014-2020), the country is strongly positioned to continue its economic winning streak well into the future. In 2015, the Polish economy grew by an annualised rate of 3.6 per cent in the first quarter and 3.3 per cent in the second. Perhaps uniquely in continental Europe, this is a country worth betting on.
However, my friend’s warning rings in my ears. For the stability of the PO years may be coming to an end. Parliamentary elections are due on 25 October. Recent polling shows that the right-wing Law and Justice Party (PiS) is on course to turf out the PO, leading by 36 to 25 per cent. While the PiS may be right-wing in terms of both its euroscepticism and (occasionally strident) nationalism, it sometimes lacks the classical right’s belief in markets. For example, about two third’s of Poland’s profitable and well-capitalised banking sector is foreign-owned; the PiS has talked about imposing new taxes on them. Such mindless protectionist nativism is the last thing Poland needs.
The PiS may also prove guilty of biting the hand that feeds it, especially in terms of Germany. During the party’s last, erratic tenure in government between 2005 and 2007, the PiS’s veteran leader – then-Prime Minister Jaroslaw Kaczynski – got into all kinds of trouble harping on about Germany’s war record every time he didn’t get his way. It is a tactic unlikely to endear him to the one country he truly has to work with to ensure Poland’s economic and strategic security. The PiS is about to be handed the golden goose of the Polish economy. Investors must hope that it does not squander such riches.
JOHN HULSMAN is president of John C Hulsman Enterprises.