1he o||sh economy rospects and Cha||enges Ahead

Marek 8e|ka
Nat|ona| 8ank of o|and
Jhy |s the o||sh economy ab|e to grow
desp|te the strong g|oba| headw|nds?
- ecent|y |t has not gone through a destab|||z|ng boom bust cyc|e
- Lxterna| shocks are respons|b|e for on|y S0 of GD vo|at|||ty
- o|and runs a re|at|ve|y |ow and susta|nab|e CA def|c|t
- 1he |ongterm re|at|ve stab|||ty of the LL has been support|ng the
compet|t|veness of o||sh exports
- o||sh export performance and the prospects for further growth and
modern|zat|on of exports are good
- o|and's pub||c f|nances affected by the cr|s|s but on the r|ght
track
- 1he o||sh |abor market |s becom|ng more f|ex|b|e
- 1he structura| prob|em econom|c growth w||| depend on |mport of
fore|gn sav|ngs
o|and has not gone through
a destab|||z|ng boom bust cyc|e
n contrast to most CLL countr|es
o|and d|d not exper|ence a destab|||z|ng boom bust cyc|e
- Corporate sector's |ow dependency on cred|t decreases |ts
vu|nerab|||ty to unexpected cap|ta| outf|ows (|oans to corporate
sector to GD reached |n 2008 169 |n 2009 1S4 and |n
2010 144 *)
- A|though c|ose t|es (eg crossborder product|on cha|n) between
Jestern and Centra| Lurope contr|bute to |nterdependence and
sp|||overs of shocks
*Source CSC 8ank|ng Stat|st|cs *Source CSC 8ank|ng Stat|st|cs
n contrast to most CLL countr|es
o|and d|d not exper|ence a destab|||z|ng boom bust cyc|e
20
0
20
40
60
80
100
2002 2003 2004 2003 2006 2007 2008 2009 2010
Cred|t growth yoy
L CLL mln ( yoy) CLL max ( yoy)
20
13
10
3
0
3
10
13
2002 2003 2004 2003 2006 2007 2008 2009 2010
ea| GD growth yoy
L CLL mln ( yoy) CLL max ( yoy)
Notes CLL m|n Notes CLL m|n and and CLL max CLL max mean max|mum and mean max|mum and
m|n|mum growth rate among a|| CLL m|n|mum growth rate among a|| CLL
Source D8 Source D8 esearch esearch 2010 2010
A|though share of tota| assets of subs|d|ar|es and branches of cred|t
|nst|tut|ons from LU countr|es shrank dur|ng the cr|s|s ||ke |n most CLL
countr|es o|and d|d not exper|ence a destab|||z|ng boom bust cyc|e
0 20 40 60 80
LaLvl a
LsLonla
LlLhuanla
Pungary
8omanla
Czech 8ep
oland
1oLal asseLs of subsldlarles of credlL lnsLlLuLlons from Lu counLrles ln of LoLal
asseLs of credlL lnsLl LuLl ons ln 2008
1oLal asseLs of subsldlarles of credlL lnsLlLuLlons from Lu counLrles ln of LoLal
asseLs of credlL lnsLl LuLl ons ln 2009
0 3 10 13 20 23
LaLvl a
LsLonla
LlLhuanla
Pungary
8omanla
Czech 8ep
oland
1oLal asseLs of branches of credlL lnsLlLuLlons from Lu counLrles ln of LoLal
asseLs of credlL lnsLl LuLl ons ln 2008
1oLal asseLs of branches of credlL lnsLlLuLlons from Lu counLrles ln of LoLal
asseLs of credlL lnsLl LuLl ons ln 2009
Source L8C 2010 Source L8C 2010
ore|gn shocks are respons|b|e
for on|y S0 of GD vo|at|||ty |n o|and
ore|gn shocks are respons|b|e for on|y S0 of GD vo|at|||ty |n o|and
0
25
50
75
100
1 2 3 4 5 6 7 8 9
1
0
1
1
1
2
1
3
1
4
1
5
1
6
1
7
1
8
1
9
2
0
2
1
2
2
2
3
2
4
2
5
2
6
2
7
2
8
2
9
3
0
3
1
3
2
3
3
3
4
3
5
3
6
3
7
3
8
3
9
4
0
P
e
r
c
e
n
t
a
g
e

o
f

v
a
r
i
a
n
c
e
Quarters
SVAR forecast error variance decomposition
of the domestic output gap
Foreign shock
Domestic
shock
5ource N8P stoff co/cu/otions
o|and runs a re|at|ve|y |ow
and susta|nab|e CA def|c|t
o|and's current account def|c|t |s |ower
and more stab|e than |n most CLL countr|es
2001 2002 2003 2004 200S 2006 2007 2008 2009 2010
200110
average
200110
std dev
ulgarla 33 24 33 64 116 176 232 231 89 13 107 83
Czech 8ep 31 33 60 31 10 20 43 21 24 31 36 17
LsLonla 34 98 113 113 100 133 160 97 37 36 81 69
LaLvla 77 67 82 129 126 223 224 132 86 30 94 98
LlLhuanla 47 31 67 76 71 106 144 129 44 13 63 39
Pungary 61 70 80 83 72 74 73 73 02 11 38 33
8omanla 33 33 33 84 86 103 134 116 42 40 73 33
Slovakla 83 79 08 34 84 82 33 62 32 34 33 27
o|and 31 28 26 S3 24 38 62 66 39 47 41 1S
Current account def|c|t as a of GD
-5ource urostot
1he CA does not ref|ect pr|ce compet|t|veness prob|ems
r|ces |n o|and are |ower than |n LU1S
-5ource urostot
1he CA does not ref|ect pr|ce compet|t|veness prob|ems
o||sh exporters are pr|ce compet|t|ve
-5ource N8P quorter/y survey
conomic c/imote"
ea| convergence (expectat|ons of growth |n |ncome)
and h|gh rate of return exp|a|n the CA def|c|t
Household income is converging Return on investment in Poland is high
Source: Eurostat
Aotes: Calculated as a ratio of income flow (BoP
statistics) and the stock of liabilities (IIP statistics)
CA def|c|t |n o|and |s f|nanced |arge|y
by net D |nf|ows and LU transfers
owever CA def|c|ts have |ed to a bu||dup of fore|gn
||ab|||t|es that need to be pa|d back |n the future
1h|s |s ref|ected by a worsen|ng ba|ance on |ncome but
the ba|ance on goods and serv|ces |s |mprov|ng
e|at|ve |ongterm stab|||ty of the LL has been
support|ng the compet|t|veness of o||sh exports
60
70
80
90
100
110
120
130
140
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
ReaI Effective Exchange Rates
(CPI defIated, 2005 = 100)
PoIand
Czech RepubIic
Hungary
SIovak RepubIic
1he f|ex|b|e exchange rate of the o||sh z|oty
he|ped to w|thstand adverse externa| shocks
5ource 8l5
S|nce 2002 the LLULC of the 2|oty
has been support|ng the compet|t|veness of o||sh exports
Source: ABP
60
70
80
90
100
110
120
130
140
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
2
0
0
2
2
0
0
3
2
0
0
4
2
0
0
5
2
0
0
6
2
0
0
7
2
0
0
8
2
0
0
9
2
0
1
0
2
0
1
1
ReaI Effective Exchange Rate of the ZIoty
(ULC defIated, 2005 = 100)
1he performance of
o||sh exports
20
25
30
35
40
45
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
EU 27 PoIand
Exports share of GDP (%) in European Union and Poland
ap|d open|ng of the o||sh economy ap|d open|ng of the o||sh economy
Source: Eurostat.
Source: Eurostat.
50
100
150
200
250
300
350
400
450
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
0.6
1.0
1.4
1.8
2.2
2.6
3.0
3.4
3.8
PoIand's share of EU exports (right axis) EU-27 exports PoIand's exports
Poland's and EU (27) exports and the Poland's share of EU total exports (%)
o||sh exports grew faster o||sh exports grew faster
than of other LU countr|es than of other LU countr|es
ore PoIish exports going eastwards
Source: Eurostat.
0
100
200
300
400
500
600
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
60
65
70
75
EU-15 share of PoIand's exports (right axis) EU-15 countries
CentraI and Eastern European countries former Soviet Union countries
Poland's exports by main countries groups and EU-15 share of Poland's exports (%)
Source: Eurostat.
50
100
150
200
250
300
350
400
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
CapitaI goods
Consumer goods
Intermediate goods
FueIs
Poland's exports by broad economic categories (value indices 2000 = 100)
Dynamic growth of finaI goods exports
Source: Eurostat.
0
50
100
150
200
250
300
350
400
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
0.0
1.5
3.0
4.5
6.0
7.5
9.0
10.5
12.0
China
PoIand
Czech Rep.
Turkey
Korea
mports of Euro area from selected countries (value indices 2000 = 100)
and Poland's share of extra Euro area imports (%)
oubled share of Poland in Euro area imports oubled share of Poland in Euro area imports
PoIand's share of EA
imports (right axis)
Growth of imports from:
rospects for further growth
and modern|zat|on of o||sh exports
rospects for further growth |n o||sh exports
2
- 1he share of med|umtech products |n o|and |s re|at|ve|y h|gh
among the LU members of CLCD
- 1he share of h|ghtech products |n exports |s st||| |ow but has
been grow|ng stead||y over t|me
rospects for further growth |n o||sh exports
5ource N8P stoff co/cu/otions usinq Ocu 514N doto {2009)
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
Medium-Low Technology Manufactures Medium-High Technology Manufactures High Technology Manufactures
rospects for further growth |n o||sh exports
0%
2%
4%
6%
8%
10%
12%
20%
25%
30%
35%
40%
45%
2000 2001 2002 2003 2004 2005 2006 2007 2008
Medium-high technology manufactures Medium-low technology manufactures High-technology manufactures (right scale)
5ource N8P stoff co/cu/otions usinq the Ocu 514N uotobose
more recent internotiono//y comporob/e doto unovoi/ob/e for Po/ond
Lxports |ncreased part|y due to D |nf|ows
- 1he surge |n exports before 2004 was part|a||y due to the
|ncreas|ng |mportance of fore|gn f|rms and the|r export
performance
- 1h|s structura| change resu|t|ng from D |nf|ows was
comp|eted |n the m|dd|e of the prev|ous decade
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Share in overaII exports
Foreign firms Domestic firms
Lxports |ncreased part|y due to D |nf|ows
5ource N8P stoff co/cu/otions usinq 6u5 firm/eve/ doto
Lxports |ncreased part|y due to D |nf|ows
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Share in overaII revenues
Foreign firms Domestic firms
5ource N8P stoff co/cu/otions usinq 6u5 firm/eve/ doto
o|and's pub||c f|nances affected by the cr|s|s
but on the r|ght track
L|m|ted |mpact of the g|oba| cr|s|s on o|and's f|sca| hea|th
5ource lMl wor/d conomic Out/ook {5eptember 2011)
ubllc debL raLlo ln
oland
- moderaLe before Lhe
crlsls
- llLLle lncrease durlng
Lhe crlsls
- no longer rlslng
easonab|y |ean and growthfr|end|y structure of pub||c spend|ng
su|tab|e for a catch|ngup economy
5ource uropeon commission 4McO dotobose
CurrenL prlmary expendlLure ln Lu counLrles
(2011 of Cu)
ubllc lnvesLmenL ln Lu counLrles
(2011 of Cu)
o|and's we||estab||shed f|sca| ru|e framework
5ource uropeon commission fisco/ ru/es dotobose
- ConsLlLuLlonal debL celllng of 60 of Cu lnLroduced ln 1997
- reachlng of prudenLlal Lhresholds of 30 and 33 of Cu Lrlggers flscal
ad[usLmenL measures
- AddlLlonal consLralnLs on local governmenL borrowlng
- oland's flscal rule framework compares well Lo oLher Lu counLrles
Luropean Commlsslon llscal 8ule lndex
(2009) ln Lu 27 counLrles
o||sh |abor market |s becom|ng
more f|ex|b|e
o||sh |abor market |s becom|ng more f|ex|b|e
1he slowdown of 20002001 broughL abouL a deeper and much longer
lasLlng lncrease ln unemploymenL Lhan Lhe slowdown of 2009
1hls was due Lo swlfLer wage ad[usLmenLs and labor hoardlng LhaL saved
many [obs durlng lasL slowdown
5ource c5O doto
actors beh|nd |ncreased |abor market f|ex|b|||ty
0
10
20
30
40
S0
60
70
80
90
100
LUk 8L LS C SL Sk G C2 U L1 8G A1 1 L LL 1
Downward reaI wage rigidity
(coverage of indexation)
5ource c8 woqe uynomics Network 5urvey keport {2009)
actors beh|nd |ncreased |abor market f|ex|b|||ty
5ource N8P Lobor keport 2011
.
.
-
-z
-

6
z 6 z zz z z6 z
The trade union coverage in Po|and and EU in % of emp|oyees
Llfference PL vs LU-z, PL LU-z,
5ource N8P Lobor Morket keport 2011
|ex|b|e wage components prov|ded a cush|on aga|nst adverse shocks
actors beh|nd |ncreased |abor market f|ex|b|||ty
actors beh|nd |ncreased |abor market f|ex|b|||ty
5ource c8 woqe uynomics Network 5urvey uoto {2007)
5ource PLLl5 doto
Crowlng share of flxedLerm employmenL conLracLs
actors beh|nd |ncreased |abor market f|ex|b|||ty
actors beh|ng |ncreased |abor market f|ex|b|||ty
0
.
0
0
0
5
.
0
0
1
.
0
0
1
5
0 1000 2000 3000 4000
expected wage market wage (counterfactual)
Distribution of expected and market wages
5ource N8P keport from Lobour Morket 5urvey 2011
1he unemp|oyed have rea||st|c wage expectat|ons
but the |neff|c|ency of emp|oyment serv|ces |s st||| a prob|em
ub||c emp|oyment agenc|es have a
||m|ted ro|e |n |mprov|ng emp|oee
emp|oyer match|ng
Cn|y about 10 (ma|n|y worst pa|d)
vacanc|es are reported to pub||c
agenc|es
ub||c agenc|es have ||m|ted resources
and knowhow to he|p |n retra|n|ng
wh||e over 40 of the unemp|oyed
probab|y need |t
About 20 of reg|stered persons |n
pub||c agenc|es are not unemp|oyed but
persons who need access to soc|a|
secur|ty
5ource N8P keport from Lobor Morket
5urvey 2011
o||sh econom|c growth requ|res to be
f|nanced from fore|gn sav|ngs as we||
%
%
%
%
%
%
I
.

I
.

I
.

I
.

I
.

I
.

I
.

I
.

I
.

8
I
.

9
I
.

I
.

Total economy Coipoiates Bouseholus

ap|d growth
|n k |end|ng
Sav|ngs |n o|and
Jhat are the prospects for f||||ng the domest|c sav|ngs gap?
- Ds expected to st||| p|ay an |mportant ro|e
nterna| cap|ta| markets w|th|n |arge |nternat|ona| corporat|ons
- Corporate bond market st||| re|at|ve|y underdeve|oped but may become a
channe| for channe||ng sav|ngs from "rea| money |nvestors" (pens|on funds
|nsurance compan|es mutua| funds)
- 8ank's ro|e |n channe||ng fore|gn sav|ngs to o|and may face new
cha||enges
Deter|orated f|nanc|a| stand|ng of parent banks m|ght ||m|t |ntragroup
fund|ng ava||ab|e for some domest|c banks
Demand for fund|ng from government and bank|ng sector sovere|gns
may crowdout a part of funds ava||ab|e for bank|ng sectors |n catch|ng
up econom|es
ncreased stress on counterparty cred|t r|sk management and new
regu|atory requ|rements (8ase| CD I) m|ght resu|t |n decreased
demand (or at |east h|gher cost) for bank|ssued bonds