Country Risk Rating

A3
Changes in generally good but somewhat volatile political and economic environment can affect corporate payment behavior. A basically secure business environment can nonetheless give rise to occasional difficulties for companies. Corporate default probability is quite acceptable on average. - Source: Coface

Business Climate Rating

A2
The business environment is good. When available, corporate financial information is reliable. Debt collection is reasonably efficient. Institutions generally perform efficiently. Intercompany transactions usually run smoothly in the relatively stable environment rated A2.

Strengths

  • Market of 38 million people
  • Proximity to West European markets
  • Price competitiveness; qualified and cheap labor force
  • Integrated into the German production chain
  • Diversified economy (agriculture, variety of industries, services)
  • Resilient financial sector

Weaknesses

  • Inadequate level of investment; domestic savings rate too low
  • Weakness in R&D
  • Developmental lag of Eastern regions
  • Structural unemployment; low level of female employment

Current Trends

EXTENDED RECOVERY FADES OUT

In 2019, Poland will likely experience a slight slowdown in economic growth after two years of accelerating activity, with GDP growth rates reaching their highest levels since 2011. Household consumption remains the main growth driver, thanks to the buoyant labor market. The unemployment rate is the lowest in 28 years, wages are set to keep growing at fair rates, the central bank’s rate is at its lowest point in history, and consumer sentiment indicators remain high. Moreover, a rebound of fixed asset investments brings additional support for growth. Investments are still supported by an inflow of EU funds, which have enhanced investments by at least 2 percentage points. Nevertheless, growth of domestic activity will stabilize, and the trade balance is likely to be negative in light of the weaker economic expansion of eurozone (the main trading partner) – exports represent over 50% of GDP. This will lead to the Polish economy being less robust in 2019.

Although the labor market situation is beneficial for households, companies have perceived it as a constraint. Labor shortages have become a drag in current business activity and its further expansion, and have been reported by an increasing number of companies across all sectors. A lack of workforce is especially evident in the manufacturing, construction and transport sectors. In addition, the insolvency law enacted in 2016 has favored the increase in business restructuration proceedings, which have accelerated since then.

THE BUDGET DEFICIT REMAINS LOW DESPITE SOCIAL MEASURES

The general government deficit remains on a decreasing path: it is estimated to have reached 0.9% of GDP in 2018 after recording 1.4% in 2017. Costly social measures – such as child benefits and the lowering of the statutory retirement age in 2017 – have been offset by the robust macroeconomic performance, which brought an increase of revenues from personal and corporate income taxes (the structural deficit, i.e. excluding effect from the cycle amounted to 2.0% of GDP, according to the European Commission’s estimation). The improved tax collection has brought sizeable and positive effects to the Polish budget balance, as further such measures will likely do in 2019. The favorable labor market contributes to strong growth of social contributions. Public investment expenditure will continue to grow as Poland hosts a series of elections: municipal in late 2018, domestic and European parliamentary in 2019, and presidential in 2020. The public debt is expected to remain on a manageable level, benefitting from a low budget deficit and the relatively solid GDP growth of Polish economy.

The current account balance turned slightly negative in 2018. Whereas trade in services continues to perform well supported by transportation services abroad, trade in goods is affected by solid demand from Polish households and companies importing for improving their production capacities. Indeed, imports have been more dynamics than exports: in the first nine months of 2018, exports increased by 3.8% compared to the same period of previous year whereas imports surged by 6.8%then.

CHALLENGING POLITICAL AND SOCIAL SITUATION

The conservative Law and Justice (PiS) party won a majority of seats in the Sejm (the lower house of Polish Parliament) in the latest legislative elections in October 2015 (37.6% of votes), ahead of Civic Platform, the main opposition party. Since taking office, the PiS has conducted a series of disputable reforms that have undermined the country's democratic institutions and worsened the relationship with the EU. The European Commission has triggered Article 7 of the Union Treaty, which could provide for the suspension of certain rights, including the right to vote, in case of a clear risk of serious violation of the rule of law. Such actions have also generated social discontent within segments of the population, and have polarized public opinion. In the latest municipal elections in October 2018, the PiS increased its hold on regional parliaments, but failed to win mayoral contests in most of the country’s largest cities.

Although the current government has successfully achieved a higher collectability of taxes and is enjoying a favorable macroeconomic environment, the political climate is relatively gloomy. This has contributed to a higher level of uncertainty compared to previous years, and has also affected investors’ attitudes. On the other hand, stable fundamentals, Poland’s integration into Western European value chains, and attractive yields have convinced foreign entities to not withdraw their direct and portfolio investments from Poland.

Source:

Coface (02/2019)
Poland