Although still outperforming most of its neighbors, Poland needs to reinvent itself if it wishes to sustain long-term growth.

When Poland’s central bank in October cut interest rates by 50 basis points to 2%, it may have signaled to many that even Eastern Europe’s strongest economy now was suffering from a slowdown, along with the rest of Europe.

But in November, amid expectations of another rate cut, the central bank stayed pat. And comments from Polish rate setters Elzbieta Chojna-Duch and Jerzy Hausner suggest that the next rate cut—much to the government’s displeasure—may not be soon.

But when the next rate cut will be and what will drive central bank policy change is unclear. “I don’t think anyone knows,” says Michal Rusiecki, a managing partner of Enterprise Investors, the oldest private equity group in Poland. “My generation and the previous one (which runs the central bank) was shaped by the experience of hyperinflation in 1990 (prices [also] rose by 70% in the month of January 1991, if I recall correctly), so deflation is something really new and alien for us.”

While the new Polish government continues to push for further rate cuts to boost falling consumer prices, its real worry may be Poland’s strong zloty. In an environment where demand for exports has weakened, a strong zloty could further dampen demand, Finance minister Mateusz Szczurek recently warned.

In 1989, after the fall of the Berlin Wall, Poland along with many countries in Central and Eastern European, was in an economic and financial shambles. But in the 25 years since then, Poland’s GDP has soared to over $510 billion.

“It’s the greatest achievement of the transition policies,” says Leszek Balcerowicz, of the Warsaw School of Economics, who was deputy prime minister between 1989 and 1991. “This extraordinary growth resulted largely from the accumulated reforms of the enterprise sector and from the macroeconomic policies (especially monetary) that prevented the emergence of boom-bust episodes,” says Balcerowicz, the architect of an economic transformation program that continues to be referred to as “shock therapy.”

Poland’s success in great part has been in its ability to reconcile the two major postulates of the eurozone recipe against the crisis: how to have both growth and fiscal consolidation, notes Jacek Saryusz-Wolski, member of the European Parliament, “without being tempted toward fiscal relaxation and without overplaying fiscal rigor that kills growth.”

Rusiecki, Enterprise Investors: Deflation is something really new and alien for us.

But Poland’s continued growth and stability is also in great part the result of having established a banking environment and a trading platform that foreign investors and corporations were comfortable with. “The Polish government’s ability to keep the balance in macroeconomic terms so that the balance of payments did not collapse, and the convertibility of the zloty, opened up a world of opportunities to those who were willing to take the risk,” says Jan Krzysztof Bielecki, chairman of Poland’s Economic Council and prime minister in 1991. “The lunch ticket for many was privatization with well-known internationals. Those internationals who entered Poland as the first [foreign] player, they made a fortune, they bought a quite good company with a strong position in the market, so when they injected some kind of new technology and better management, they became extremely successful.”

While many of its neighbors were betting on rapid growth without controls—growth at any cost—Poland’s insistence on bringing in multinationals that were willing to invest in the domestic economy and be strategic partners continues to pay dividends even now. “Although Poland has lost some ground over the last couple of years, it is still the most attractive country for FDI [foreign direct investment] in Central and Eastern Europe,” noted consulting firm EY in a recent report.

Given the success of the first few foreign companies, recalls Bielecki, FDI inflow began growing consistently after a couple of years. “But at the beginning most [of our neighbors] were watching, in particular the Germans, who did not believe that we could do it. Have a successful transition, they said.”

“We thought the Germans would enter immediately—these are our neighbors—but no, nothing doing. Then seven years later, they changed completely their minds and they were like today: happy to buy anything,” Bielecki adds. “At the beginning, the first reaction came from American companies, giant companies, some British companies, but not from neighbors, the Germans or the French.”

Poland’s success during the years 19892004 was the result of building the institutional bases of the free-market economy. “After the accession to the EU, the model was one of intensive growth based on the influx of EU and structural funds,” notes economist Janusz Jankowiak of the Polish Business Roundtable, a think tank. In the past decade, the Polish economy has grown by 49%, compared with the rest of the European Union, which has grown by only 11%.



Now, problems in the rest of Europe are affecting Poland. “Growth in Poland will slow in the last months of the year due to a decline in exports, as demand in the eurozone slows,” the European Commission noted in a statement, adding that Poland’s economy is also being hit by the Russian embargo on food imports from the EU. Germany’s weakening economy, which accounts for 25% of Polish exports, has slowed Poland’s exports of industrial goods. And Polish food growers, who in 2013 sold over $1 billion worth of fresh produce to Russia, including 700,000 tons of apples, have been forced to sell their stock at deep discounts or stockpile, when possible.

The Commission has cut its prediction for Poland’s economic growth in 2014 from the 3.2% it forecast in May to 3%. But that still is far ahead of its 1.3% projection of overall EU GDP growth—and just 0.8% in the eurozone.


Nonetheless, domestic demand remains strong. A recent survey of loan officers by the country’s central bank, Narodowy Bank Polski, found that there was little evidence of major changes in demand for loans or in lending policies. Compared with the previous edition of the survey, there was a lower percentage of the banks that identified factors favoring the easing of lending policy toward enterprises. In particular, responding banks did not change the terms on corporate loans significantly.

Banks, however, intensified monitoring and limited credit extension to certain sectors—notably, to enterprises engaged in exports to Russia and Ukraine, enterprises that were overreliant on raw materials imported from these countries and enterprises with a substantial share of sales to those in the coal-mining industry, where a number of companies are financially distressed.

In spite of the problems that domestic coal mining faces, the Polish energy sector has just been handed a lifeline. The European Bank for Reconstruction & Development in November approved a program to help Poland switch from a reliance on carbon-intensive fuels to a more diverse, clean and sustainable energy mix. Poland estimates that it needs €10 billion ($13.3 billion) in renewable energy investments to double its renewable energy capacity to 11 gigawatts by 2030 and achieve domestic and EU targets.

The EBRD says it will support Poland’s electricity distribution network operators in building both the physical and operational capacity to connect new, renewable energy generators. That task will mean financing 500 megawatts of renewable energy capacity by 2018 and result in significant savings in carbon dioxide emissions.

Growth will continue, says Rusiecki of Enterprise Investors, which has always focused on a long-term development and investment strategy for Poland. “I believe the prospects are good if there is at least minimal political stability in Europe and Poland. I think there is hope for a more innovative generation of entrepreneurs and managers to take the economy to the next level, but they need another 10 years of stability.” n

GFmag.com Data Summary: Poland

Central Bank: National Bank of Poland

International Reserves                  

$ 112.5 billion

Gross Domestic Product (GDP)

$517.7 billion

Real GDP Growth







GDP Per Capita—Current Prices


GDP—Composition By Sector*  














Public Debt (general government
gross debt as a % of GDP)







Government Bond Ratings

(foreign currency)

Standard & Poor’s




Moody’s Outlook


FDI Inflows


$20,616 million


$6,059 million


$6,038 million

* Estimates                                                                       
Source: GFMag.com Country Economic Reports, IMF