POLAND 2009 REPORT ECONOMY

Transcription

1 MINISTRY OF ECONOMY POLAND 2009 REPORT ECONOMY WARSAW 2009

2 MINISTRY OF ECONOMY Prepared by: Ministry of Economy Analyses and Forecasting Department Agnieszka Albrecht, Michał Drobniak, Andrzej Grabarczyk, Agnieszka Kalisiewicz, Monika Krupa- Leończyk, Diana Łukaszek-Rozpendowska, Małgorzata Mendyk, Kazimierz Miszczyk, Marcin Mucha, Wiesław Stempkowicz, Maria Szkutnicka-Pieniążek, Elżbieta Szułczyńska, Michał Szymczuk, Monika Walczak, Krzysztof Wójtowicz, Marcin Zelman In cooperation with: Economic Development Department, Economic Regulations Department, Energy Department, European Affairs Department, European Funds Department, Electronic Economy Department, Mining Department, Nuclear Energy Department, Oil and Gas Department, Support Instruments Department, and Trade Policy Department Supervised by: Aneta Piątkowska Director of Analyses and Forecasting Department Translation: GTC AMG sp. z o.o. ul. Rolna 155 a Warszawa ISSN

3 POLAND 2009 REPORT ECONOMY Contents SYNTESIS...7 PART I POLAND AND THE WORLD PRINCIPAL TRENDS IN THE WORLD ECONOMY GENERAL DESCRIPTION OF THE SITUATION IN THE WORLD ECONOMY IN ECONOMIC SITUATION ON MOST IMPORTANT WORLD MARKETS USA Japan Western Europe and the Eurozone Developing Asian markets The Commonwealth of Independent States REAL INCREASE IN THE GLOBAL TRADE IN GOODS IN PRICES AND EXCHANGE RATES IN THE INTERNATIONAL TRADE IN GOODS IN 2008 _ World prices fluctuations Exchange rate fluctuations Changes in the trade in goods in main regions PROSPECTS OF THE WORLD TRADE DEVELOPMENT IN COUNTERACTING THE GLOBAL ECONOMIC CRISIS USA Japan Western Europe and the Eurozone Developing Asian markets The Commonwealth of Independent States POLAND IN THE EUROPEAN UNION OVERALL ASSESSMENT OF THE POLISH MEMBERSHIP TO THE EU Polish economy Implementation of common EU programmes Recovery Package Convergence Programme Common economic regulations Streamlining legal regulations State aid element of the competition policy Environmantal package - the so called green revolution LISBON STRATEGY INTERNAL MARKET Free movement of goods and services Free movement of persons Horizontal industrial policy Energy and climate package Adjustments in the energy area Internal market and relations with third countries COMPETITIVENESS OF THE POLISH ECONOMY INTERNATIONAL COMPETITIVENESS RANKINGS POLAND COMPARED TO OTHER EU MEMBER STATES 60 3

4 MINISTRY OF ECONOMY 4 GROSS DOMESTIC PRODUCT GDP AND GROWTH DRIVERS INTERNAL DEMAND IMPACT OF INVESTMENTS ON GDP DYNAMICS IMPACT OF EXPORT ON GDP DYNAMICS ROLE OF SECTORS IN GDP FORMATION EFFECT OF GLOBAL FINANCIAL CRISIS ON ECONOMIC GROWTH IN GROSS DOMESTIC PRODUCT PER CAPITA IN POLAND COMPARED TO SELECTED COUNTRIES 75 5 LABOUR MARKET EMPLOYED PERSONS UNEMPLOYMENT AND UNEMPLOYMENT RATE STRUCTURAL MISMATCH ON THE LABOUR MARKET FOREIGN MIGRATION FOR ECONOMIC REASONS 81 6 FOREIGN TRADE TRENDS IN POLISH FOREIGN TRADE IN GEOGRAPHICAL STRUCTURE OF FOREIGN TRADE TURNOVER CHANGES IN COMMODITY STRUCTURE OF FOREIGN TRADE FOREIGN TRADE IN THE FIRST MONTHS OF THE EXCHANGE RATE AND ITS INFLUENCE ON COMMODITY TRADE 96 7 INFLATION AND MONETARY POLICY PRICES Consumer prices Prices of industrial production and construction/assembly production MONETARY POLICY Basic factors influencing the implementation of monetary policy Monetary policy implementation in Instruments of monetary policy implementation THE PUBLIC FINANCES STATE BUDGET PUBLIC FINANCE MEETING THE TREATY OF MAASTRICHT CRITERIA INDUSTRY DYNAMICS AND STRUCTURE OF INDUSTRIAL OUTPUT Industrial output dynamics Quarterly output dynamics in the manufacturing industry The structure of output in different sections and branches of industry Output dynamics in the first half of

5 POLAND 2009 REPORT ECONOMY 9.2 ESSENTIAL PROBLEMS OF INDUSTRY. DEVELOPMENTS IN SELECTED SECTORS Horizontal industrial policy Sectoral policies Hard coal mining Automotive sector Chemical sector (including pharmaceuticals) Iron and steel metallurgy sector Electronic sector The light industry sectors (textiles, wearing apparel and leather) Wood-based sectors Shipbuilding industry POLAND'S ENERGY SECURITY SITUATION IN THE FUEL/ENERGY MARKET Security of the Polish power system Situation of the energy sector in Renewable energy sources (RES) Efficiency of the use of energy in economy European Union Greenhouse Gas Emission Trading System Nuclear power Security of oil sector Security of gas sector IDENTIFYING THREATS CONSTRUCTION GROSS VALUE ADDED AND PRODUCTION OF CONSTRUCTION INDUSTRY Macroeconomic factors behind the dynamics and production volume of the construction sector Dynamics and structure of construction and assembly production RESIDENTIAL CONSTRUCTION General problems of the residential housing industry Residential housing in ASSESSMENT OF THE CONSTRUCTION INDUSTRY PERFORMANCE SERVICES SECTOR VALUE ADDED (MARKET AND NON-MARKET SERVICES) GENERAL CHARACTERISTICS OF THE SERVICES SECTOR TRADE AND REPAIR ELECTRONIC TRADE TRANSPORT AND COMMUNICATION GENERAL PROBLEMS OF THE SERVICES SECTOR 159 5

6 MINISTRY OF ECONOMY 13 ENTERPRISES OWNERSHIP STRUCTURE AND OWNERSHIP TRANSFORMATION IN STATE-OWNED COMPANIES Ownership transformation in state-owned enterprises Number of enterprises covered by the ownership transformation procedures and the number of privatised business entities Revenues from privatisation and budget revenues from dividends Development of small entrepreneurship FINANCIAL STANDING OF COMPANIES Revenues, costs and results on individual types of activities Financial situation in the economy sectors Investment expenditures and possibilities of their self-financing Debt INVESTMENT EXPENDITURES AND POLISH FOREIGN INVESTMENTS Investment expenditures Polish foreign investments FDI INFLOW TO POLAND Role and importance of the enterprises with foreign capital FDI inflow to Poland FDI by countries of capital origin FDI inflow by sectors INNOVATIVENESS OF POLISH ENTERPRISES AND THEIR ENVIRONMENT Innovativeness of Polish enterprises Innovation of Poland as compared to other countries Institutional environment of Polish enterprises ENTREPRENEURSHIP AND BARRIERS TO ENTERPRISE DEVELOPMENT Economic regulations Barriers to enterprise development Instruments for enterprise support Instruments supporting innovation of enterprises Financial instruments for supporting exports Financial support for investments Special Economic Zones Public aid Instruments for developing a network of institutions in the business

7 POLAND 2009 REPORT ECONOMY SYNTHESIS A general evaluation of the condition of Polish economy in 2008 may not be unambiguous. In the first half of the year, the economy developed quite fast despite the fact that the downward trend in the dynamics of GDP growth from quarter to quarter, observed already in 2007, continued. However, in the second half of the year, and in particular in the fourth quarter, the economic growth rate slowed down considerably. This unfavourable trend was also observed in the first half of The economic situation of Poland in 2008 was determined by its economic condition in the second half of the year. During the year, the growth rate of GDP, of industrial production, and of market and nonmarket services declined. The dynamics of foreign trade turnover declined, both of exports and imports. At the same time, the situation on the labour market was relatively favourable. Employment increased and salaries grew fast. Registered unemployment rate declined. An increase in employment and salaries led to acceleration of the consumption dynamics which did not, however, compensate for a decrease in the growth rate of investments by over two times. As a result, the dynamics of domestic demand slowed down. Lower production dynamics were accompanied by faster salary growth which stimulated a fast increase in inflation. Polish zloty depreciated considerably against primary currencies. However, this did not result in a visible increase in exports due to a decline in demand experienced by our partners and to an increase of labour unit costs in Poland. Financial performance of companies deteriorated. Lower production caused a decline in planned budget revenues. At the same time, the deficit of public finance sector exceeded its maximum amount assumed by the Maastricht Criteria. The reason behind the economic slowdown in Poland was the global financial crisis which evolved into the world economic crisis. Negative crisis effects hit Poland in the second half of 2008, a few months after the crisis had become visible in leading world economies. However, it should be pointed out that whereas these countries were affected by recession, the situation in Poland can be described as a considerable slowdown. The reason for a relatively better situation of our country is the relatively high domestic demand and, surprising as it may seem, rather low share of foreign trade in Poland s GDP. The financial crisis affects Polish economy acting as an external shock. Therefore, it is experienced only indirectly, mainly by a credit and trade channel. Polish banking system is not a matter of concern, but risk revaluation and more severe credit criteria resulted in lower credit availability, and in an increase in the cost of money on the capital market for households and companies. Economic downturn affecting our main partners constrained external demand. The impact of the financial crisis on Polish economy was somehow compensated also by the foreign exchange rate. A decline in the foreign exchange rate of Polish currency was conducive to competitiveness of Polish exports, leading to considerable decline in imports. Net exports became the main growth factor in the first half of A better economic situation in Poland, as compared to that of other European Union countries, resulted in decreasing economic development gap. GDP per capita in Poland increased to 57.5% of the EU average. However, a considerable gap in economic development between Poland and leading European Union countries still exists. To eliminate it, it is necessary to create friendly environment for entrepreneurs and to assure effective management of public funds by efficient public institutions. The implementation of this objective will result in growing competitiveness and will assure high and sustainable economic growth. 7

8 MINISTRY OF ECONOMY EXTERNALITIES. After a few years of a high growth rate, the economy was affected by an economic slowdown. Starting in the second half of 2007, the US economy, being the main world economic growth stimulator, faced a crisis on the real estate market and turmoil on the financial market. Initial problems were related to sub-primes, and in particular to excessive liberalisation in providing credit to low-income customers. As a result, house prices declined, which in turn brought about problems for the banking sector: a mortgage bank Lehman Brothers went bankrupt, and Fed agreed to take over the government sponsored enterprise Fannie Mae and Freddie Mac. With time, the financial crisis evolved into the economic crisis, causing recession in the US economy. The US demand for imported goods and services declined considerably. To prevent further deterioration in the US economic situation, stimulating packages were introduced. These packages amounted in total to USD 1 trillion. A drastic fall in the US imports (USA is the largest importer on the world market) could not remain without influence on the global economy. Countries exporting to the US market were forced in 2008 to limit their production and imports. Global demand, and related production, started to decline in the majority of leading economies. The world trade turnover decreased by 2.6%. Global economic growth slowed down from 5.2% in 2007 to 3.2% in World stock exchange markets were affected by significant falls in stock prices and in primary stock indices. No considerable change in the situation was observed also in the first half of Worldwide trends also have an effect on the Commonwealth of Independent States. The situation on developing Asian markets is still good, though worse than before the crisis. The GDP growth rate in China shrank from 13% in 2007 to 9% in A decline in global demand affected Asian economies largely based on exports. However, relatively high demand in China and India forced Asian entrepreneurs to focus on domestic market. The global crisis destabilised the European Union economy. Almost all the Member States saw negative growth in the second half of 2008 and at the beginning of Due to a difficult situation on the financial market, domestic demand decreased from 2.4% in 2007 to 0.6% in A decline in global demand and in goods prices resulted in a fall of inflation in the Eurozone to zero in May The European Union tries to stimulate the economy with anti-crisis packages. Member States undertook common activities in the fourth quarter of 2008, based on economic rescue plan - EU EERP (European Economic Recovery Plan), which assumes that as much as EUR 200 billion will be spent to stimulate demand and create favourable conditions for the European economy to return to the fast growth path. Since Polish economy is closely linked with European Union Member States, the economic activity in these countries is of particular importance for domestic economy. Economic decrease of 2008 resulted in a decline in the growth rate of Polish exports to the EU market. In the fourth quarter of 2008, exports to this market even decreased, and after five months of 2009 their decline amounted to as much as 23%. In 2008, the European Union accounted for 77.8% of the Polish exports. The European Union countries are not only Poland s main trade partners, they are also key foreign investors in our country. The economic downturn caused a decline in total FDI in to PLN 11.3 billion (by 32%). COMPETITIVENESS OF THE POLISH ECONOMY. The competitiveness of the economy reflects the importance of national economy on the world market. Competitiveness is a very complex notion, defined by several partial indices relating to micro- and macroeconomic aspects of conducting business activity. According to the majority of international rankings, the competitiveness of Polish economy is fairly low. In every ranking, Poland is behind the majority of EU-27 countries. 8

9 POLAND 2009 REPORT ECONOMY The weaknesses of the Polish economy include unfavourable conditions for starting up business, difficulties involved in paying taxes, and long period of recovering claims. Low position of our country is also due to ineffective public institutions, poorly developed infrastructure, and a lack of innovativeness. Low labour market flexibility, low employment rate and high administrative charges imposed on entrepreneurs are negatively assessed. Factors which have a positive influence on the competitiveness of the Polish economy include: easy access to credit, low inflation, good quality of higher education and trainings, large market and macroeconomic stability. Reports also give a high note to the Polish fiscal, monetary and trade policy. It should be pointed out that competitiveness rankings are based on statistical data collected approx. two years ago. Therefore, not all the information specified about is relevant for the present situation. ECONOMIC DEVELOPMENT. Since 2003, the Polish economy witnessed strong development in all of its main sectors. In 2007, the GDP growth amounted to 6.8%. Economic prosperity continued also during the first half of 2008 when GDP increased by approx. 6%. It was only in the second half of 2008 when the upward trend slowed down. In the third quarter, the GDP growth rate slowed down to 5.0%, and in the fourth quarter to 2.8%. As a result, the annual GDP growth amounted to 4.9%, and was lower than in the previous two years. Nevertheless, the growth rate in our country belongs to the highest economic growth indices observed in the European Union. The main growth driver in the recent years has been domestic demand, stimulated by increasing employment and real salaries. In 2008, employment grew by 3.7%, and real salaries by 6.0%. Total consumption went up by 5.9% (in 2007 by 4.6%), mainly due to growing individual consumption. However, in 2008, the dynamics of domestic demand slowed down to 5.4% (from 8.7%), first of all due to limited investments. Gross fixed capital formation grew by 8.2%, as compared to 17.6% in In the first half of the year, they increased by approx. 15%, and in the second half by mere 4%. The growth rate of real salaries exceeded the GDP growth rate which resulted in an increase in labour unit costs by 3.5% as compared to 0.5% European Union average. Due to the world economy slowdown, the growth rate of imports and exports declined. In the second half of the year, strong depreciation of Polish zloty contributed to increasing competitiveness of Polish goods (an increase in labour unit costs had an opposite effect), and consequently, to developing exports, and limiting negative results of the economic slowdown in main trade partners of our country. The most significant impact on the GDP growth in 2008 was made by consumption (4.6 p.p.), followed by gross accumulation (1.0 p.p.), including gross fixed capital formation (1.8 p.p.). The impact of net exports was adverse, as in the previous year. The growth in gross value added amounted to 4.9% (as compared to 6.7% the previous year). Value added of market services grew by 5.9% (as compared to 6.5% the previous year), and in the industry - by 3.9% (as compared to 10.1% the previous year). The growth in total gross value added in 2008 can be attributed mainly to the market services sector. INVESTMENTS. Investments reflect the condition of the economy and its development prospects. Growing investment outlays of companies along with the inflow of foreign direct investments show that the economy is in a good shape and its development prospects are promising, making gains for enterprises possible. On the other hand, poor condition of the economy and unfavourable prospects for its further development cause a fall in investment processes and lead to outflow of investments to other regions, where prospects for the future seem better. The level of investment determines economic 9

10 MINISTRY OF ECONOMY development, and is a condition for growing competitiveness of the economy and of its individual sectors. Increased investments in production machinery and equipment fundamentally contribute to the modernisation of, inter alia, industry sector, to increasing the effectiveness of production processes, and to improving the quality of products. There was a steady growth of expenditures on investment projects observed since 2003, and a substantial increase in investment expenditures (by 16.8%) came in The following year, the increase growth rate accelerated even faster - reaching 20.4%. In 2008, as a result of global recession, the growth rate of investment decreased to 8.7%, mainly due to a reduction in investments in the second half of the year. Investment expenditures reached PLN 213 billion that year. The most significant increase was observed in expenditures on machinery and equipment (by 10.5%), and on vehicles (by 9.9%). As in previous years, investments were financed mainly by own funds of entrepreneurs. A downturn in global prosperity, a slowdown in the economic growth rate in our country, and an increase in labour unit costs resulted in a reduced FDI inflow. Whereas in 2007 foreign investors invested EUR 16.6 billion, the corresponding figure for 2008 is EUR 11.3 billion. In the first half of 2009, this situation became even worse. INDUSTRY. In 2007, the growth rate of industrial output amounted to 11.2%. The growth rate in industrial output was also relatively high, though gradually diminishing in the first half of 2008 (8.5%). In the second half of 2008, the global economic crisis started to exert a negative impact on our economy. In the third quarter, production grew by 3.3%, and in the fourth quarter it fell by 5.2%. Its growth amounted to 3.3% during the whole year. A downward trend has continued also in the first half of 2009 (decline in production by 8.3%). Various changes relating to production took place in 2008 in manufacturing sections. The largest section, i.e. manufacturing, determining changes in industry as a whole, was marked by a lower production increase change from 12.4% to 3.7%. Mining was the only section where growth accelerated (from 1.3% to 2.7%). Electricity, gas and water production and supplies declined by 0.9%, as compared to 2.1% in Significant changes in the production dynamics were observed in manufacturing divisions. In 13 out of 23 manufacturing divisions in total, the production increased, while a decline was observed in the remaining ten. The largest increase was observed in production of radio and television equipment (by 26.1%), of office machines and computers (by 24.2%), as well as of machinery and equipment (by 16.2%). The first two are referred to as high-tech divisions. The most considerable decline in production affected manufacturing of tobacco products (approx. 35%), three divisions of the light industry (approx. 10%), as well as the production of basic metals (5,1%) and chemical products (4.0%). The annual production dynamics in 2008 in individual divisions of manufacturing were determined mainly by the situation in the second half of the year, and in particular in the fourth quarter. The Analyses and Forecasting Department selected twelve largest divisions (out of 23) whose contribution to the production of manufacturing industry exceeds 85%. In as many as nine out of the twelve divisions selected the production declined in the fourth quarter. Most considerable falls were observed in production of basic metals (by 34.5%), and of vehicles (by 14.4%). 10

11 POLAND 2009 REPORT ECONOMY As regards divisions and groups of industries that manufacture products considered to be the carriers of technological progress, production growth amounted to 12.4% in 2008, as compared to 14.0% in The production dynamics in this group was significantly influenced by the volume of sale of radio and television equipment. The share of the carriers of technological progress in total industrial output in current prices increased from 16.2% in 2007 to 16.5%. Labour productivity in terms of production sold per employee in the industry was at the same level as in 2007, whereas an average real salary increased by 4.9%. CONSTRUCTION. Economic slowdown can be seen in all segments of the economy. Construction is not an isolated island. Gross value added in the construction sector grew in 2008 by 11.0%. Following relatively fast growth in the first half of the year (by approx. 17%), the growth rate slowed down to 10.9% in the third quarter, and to 5.0% in the fourth quarter. A downward trend in the dynamics of gross value added continued also in gross value added grew in the first quarter by 3.1%. In 2008, 165 thousand dwellings were completed, i.e. over 23% more than in An increase in the number of dwellings completed related to almost all forms of dwellings, dwellings completed in public building society construction. As compared to 2007, the most significant increase (in absolute figures) was observed in case of dwellings completed in construction for sale or rent, as well as dwellings completed in private construction. FOREIGN TRADE. First three quarters of 2008 did not indicate a change in foreign trade. Poland s exports grew rapidly during the period (increase by 19.8%). The collapse took place as late as in the fourth quarter of 2008, when exports decreased by 1.2%. Annual exports amounted to EUR billion, i.e. 14.1% more than in the previous year. As compared to 2007, the growth rate of exports was lower by 1.7 p.p. A similar situation was observed in imports. In the first three quarters of 2008, the growth rate of imports amounted to 23.8%. In the fourth quarter, it slowed down to 3.7%. On annual basis, imports (EUR billion) increased by 18.3%, i.e. by 4.2 p.p. faster than exports. The trade balance was negative and amounted to EUR 26.2 billion (as compared to EUR 18.5 billion in 2007). During the year, a negative balance increased by EUR 7.7 billion. A downward trend in the trade of commodities has continued also in During the first five months of the year, exports declined by 23.7% (to EUR 37.2 billion), and imports by 30.9% (to EUR 40.5 billion). The trend of more rapid growth in imports than in exports, observed in , which caused an accumulation of the negative trade balance, reversed. As a result, the negative balance diminished to EUR 3.3 billion. The reduction in the trade deficit was influenced by depreciation of Polish zloty by over 14% in the fourth quarter of 2008, and by 15.8% in the first quarter of Rapid depreciation of Polish zloty caused cost shock to imports. Developed markets remain the primary destination for exports of Polish goods. Their share in Poland s exports in 2008 amounted to 83.0% and was slightly below the 2000 level. 77.8% of exported Polish goods were sold within the European Union countries, and 10.5% found their customers in the Commonwealth of Independent States. The main source of Polish imports is the European Union whose share accounts for 61.9%. The share of Russia and China is also considerable. The highest deficit is still generated in the trade with China and Russia amounting to EUR 10.6 billion and EUR 7.8 billion, respectively. As regards the trade with the European Union countries, a positive balance was generated in 2008 (EUR 2.3 billion) - EUR 0.7 billion below the 2007 figure. 11

12 MINISTRY OF ECONOMY The products of electromechanical industry account for the highest value both of Poland s exports and imports (43% and 38%, respectively). Imports of this group of products grew faster than exports which deepened - by EUR 1.7 billion - the negative trade balance, which reached minus EUR 4.8 billion. The next group of exports comprises metallurgic products and chemical products, and as regards imports chemical products and mineral products. A significant deterioration of trade balance in 2008 resulted mainly from mineral products, electromechanical products and products of the electromechanical industry. LABOUR MARKET. Most significant prosperity related factors influencing the situation on the labour market comprise the economic growth rate and investment dynamics. The situation on the Polish labour market in 2008 improved. In 2008, employment grew by 3.7%, and unemployment rate, according to the LFS figures, amounted to 7.1% as compared to 9.6% in In 2008, employment ratio for people aged reached 59.2% (increase by 2.2 p.p. as compared to the previous year). According to the Lisbon Strategy, the average employment ratio in the European Union should amount to 70% by the end of Unfortunately, Poland is far from meeting this objective. The reason is a large percentage of non-working older people and low professional activity of women. The lowest professional activity can be observed in the group of people aged (which is due to poorly developed educational system for adults) and those aged The highest employment rate and the lowest unemployment rate is observed in the group of people with higher education and with vocational education, while the worst figures relate to people with rudimentary education. There is a lack of qualified craftsmen, engineers and specialists. The reason for structural non-adjustment on the labour market consists in slow changes in the education system. Higher technical schools do not respond fast enough to the growing demand for engineers communicated by entrepreneurs. Instead, such schools open humanistic faculties, such as management and administration. Furthermore, Poland is characterised by extensive geographical differences in unemployment rate. This is due to low mobility within the country. Since 2004, when Poland s joined the European Union, many people have emigrated in looking for a job. However, this trend slowed down during the last year. Due to the crisis, less and less Poles decided to go abroad searching for a job, and many others came back. In 2008, migration directions changed. The importance of the Netherlands, Luxembourg, France, Belgium, Denmark and Norway as destination for job migration increased. In 2008, the share of people working in industry and construction sectors increased. At the same time, a slight decline was observed in the share of people working in agriculture and services. PRICES. Keeping inflation at a low level has been one of the major goals of our economic policy. It is also one of the conditions for entering the European Monetary Union. At the end of 2007, the growth rate of consumer prices accelerated. This was related to a faster increase in salaries than in labour productivity in the country, as well as in food and fuel prices on the global market. The average annual inflation rate in 2007 amounted to 2.5%. In 2008, the increase in prices was even faster and reached 4.2%, which is more than the figure adopted in the Budget Act (2.3%). The reasons for price increase in 2008 are the same as in the previous year. However, it should be pointed out that the difference between an increase in salaries and an increase in labour productivity became even bigger. 12

13 POLAND 2009 REPORT ECONOMY Average annual prices of industrial output increased in 2008 faster than in 2007 (2.2% as compared to 2.0%) 1. A slower increase in prices was observed in the manufacturing sector (0.8% as compared to 1.5% in 2007). At the same time, a higher growth rate was observed in the mining sector (10.8% as compared to 3.3% in 2007). In 2008, prices in the manufacturing sector grew mainly in the production of coke and oil refinery products (18.8%), as well as of chemicals and chemical products (6.9%). The average annual prices in construction and assembly production sector grew in 2008 by 4.8% (as compared to 7.4% in 2007). MONETARY POLICY. In Monetary Policy Guidelines for 2008 the risk was pointed out that the worldwide economic slowdown would have an impact on Poland due to decreasing external demand. The main objective of monetary policy in Poland was defined as maintaining inflation around the medium-term inflation goal (2.5%). The growing inflation resulted in more tightened monetary policy. The Monetary Policy Council increased interest rates a number of times in In November, the Monetary Policy Council lowered the interest rates, because the inflation was slowing down (from 4.8% in July and August to 3.7% in November on an annual basis) and the economic activity was diminishing. At the end of 2008, the reference interest rate amounted to 5.0%. In the first months of 2009, the Monetary Policy Council reduced interest rates a number of times. The reference interest rate stood at the end of July 2009 at 3.5%. PUBLIC FINANCE. Good condition of public finance is one of the priorities of Polish economic policy. The situation of public finance may be assessed based on the general government deficit and debt-to- GDP ratio. In 2007, both indicators were falling. In the period of fast economic growth, tax revenues grew rapidly. The general government deficit-to-gdp ratio declined from 3.8% in 2006 to 2.0% in 2007, and the debt-to-gdp ratio fell from 47.7% to 45.2%. Since the accession to the European Union Poland was covered by the excessive deficit procedure (the share of the general government deficit in GDP exceeded 3%). In July 2008, the Council of Ministers of the European Union decided to end the excessive deficit procedure against our country, due to the fact that the general government deficit in GDP declined below 3%. The global crisis, which arrived in Poland in the second half of 2008, had a very negative impact on the situation in public finance sector. The deficit of this sector increased to 3.9% GDP, and the sector debt to 47.0%. Due to exceeding the reference level of public finance sector deficit, the European Commission again started the excessive deficit procedure against Poland in June The slowdown in economic growth experienced by Poland in 2008 resulted in a considerable fall in budget revenues which were much lower than those assumed in the Budget Act. Budget revenues amounted to PLN billion, i.e. 89.9% of the planned revenues. Budget expenditures amounted to PLN billion, corresponding also to 89.9% of the planned figure. A large share of fixed expenditures in total budget expenditures (predetermined arising from statutory regulations or previously undertaken liabilities within legal frameworks amounting to as much as 72.7% of expenditures in 2008) makes it impossible to introduce any significant changes on the expense side of the budget. The budget deficit reached PLN 24.3 billion (89.9% of the planned figure). As at the end of June 2009, budget revenues amounted to PLN billion, i.e. to 44.3% of planned revenues 2. Budget expenditures (PLN billion) formed 47.0% of planned expenditures. The budget deficit after six months amounted to EUR 16.7 billion (91.6% of planned figure). 1 Production prices indices were presented according to the PKD 2007 classification. 2 Figures for the first half of 2009 were compared to the Budget Act adopted by the Parliament on 23 January On 17 July 2009, the Parliament amended thebudget Act. 13

14 MINISTRY OF ECONOMY OWNERSHIP STRUCTURE OF THE ECONOMY. Since the beginning of the transition process, fundamental changes in the ownership structure of the Polish economy have occurred. Polish stateowned companies were subject to intensive privatisation. In mid-90s, the private sector gained a dominant position in Polish economy, and its dominance over the public sector increases every year. In 2007, the share of the private sector in gross value added amounted to 77%. In the years , the ownership transformation of enterprises was completed. In April 2008, the government adopted Privatisation Plan for the years which assumes privatisation of 740 entities within four years. In February 2009, the list of companies to be privatised was extended to include 802 entities. On 11 August 2009, the government took a decision to speed up the privatisation processes. A list of key companies to be privatised in the years was prepared. This list comprises 54 companies (including 15 to be privatised by the end of 2009, and further 39 - in 2010). The Council of Ministers decided that the State Treasury retained full control and corporate supervision over major enterprises, namely: KGHM, Tauron, Lotos and PGE. Privatisation is expected to help out many State Treasury companies in a difficult economic and social situation, to make them more effective, to support our economy, and to increase budget revenues in the years Between 1991 and 2008, privatisation revenues amounted to over PLN 96 billion. As at 11 August 2009, revenues reached PLN 3.2 billion, which is approx. 27% of planned revenues. Privatisation revenues in the years are assumed at PLN 36.7 billion (PLN 11.7 billion in the second half of 2009, and PLN 25.0 billion in 2010). ENTREPRENEURSHIP. Entrepreneurship results in efficiency necessary in day-to-day operation of the company, and creates basis for its development. Entrepreneurship depends on various external business environment factors such as: legal regulations, tax system, labour costs, road and telecommunication infrastructure, and financial as well as judicial system. There are many barriers hindering the growth of entrepreneurship in Poland, including, inter alia, complicated law and bureaucracy. To limit a negative influence of these factors, several proposals and plans for reforms have been prepared. The first of them, namely a three-stage programme Better regulation is aimed at simplifying mandatory regulations, assuring high quality of adopted law, and reducing administrative burden. The Package for the Entrepreneurship, on the other hand, aims at simplifying starting and running business. The package comprises over 20 amendments of acts, relating inter alia to freedom of economic activity, accountancy, special economic zones, tax ordinance, code of commercial companies, bankruptcy law, and public-private partnership. In order to better identify barriers to development and to overcome them, the economic situation is reviewed regularly based on surveys addressed to entrepreneurs. In 2008, as in previous years, entrepreneurs specified the amount of taxes and fees, as well as complicated legal regulations as the most significant barriers to development. Factors, which proved less important in previous years, were lower turnover and competition from small and large enterprises. Such responses were given by entrepreneurs due the worldwide crises. In the light of the economic slowdown, companies perceive labour costs and problems of irrelevant employee qualifications as less important. 14

15 POLAND 2009 REPORT ECONOMY Micro-enterprises become more and more important for the economy. Their number increases every year. In 2007, there were 1.7 million enterprises employing less than 9 employees (increase by approx. 4%). Revenues and the number of employees in micro-enterprises have been growing. The survival ratio, i.e. the percentage of enterprises which were not closed down within the first year of activity has increased as well. INNOVATIVENESS. One of the indices showing the development level and competitiveness of the economy is innovativeness of a given country. As regards this criterion, Poland occupies a remote place in international rankings. According to the European Innovation Scoreboard 2008 (EIS), Poland belongs to the chasing countries as the level of the Summary Innovation Index is lower than the average for all European Union countries, but the growth rate of this index exceeds the average figure. In this ranking Poland placed 23 out of 27 countries. The main barrier to further development of innovativeness is insufficient financing. Expenditures on R&D amounted in 2007 to PLN 6.7 billion (increase by PLN 0.8 billion as compared to the previous year). The expenditures on R&D-to-GDP ratio has remained at a similar level of 0.57% for the last couple of years. Expenditures on R&D are largely financed by budget funds which places Poland among less developed countries. The share of high-tech products in Poland s foreign trade turnover in 2007 accounted to 4.2% for exports (increase by 1.1 p.p.) and 10.8% for imports (increase by 1.6 p.p.). Analogical figures for the EU are 16.7% and 23.0%, respectively. In 2007, 2,392 patents were submitted for patent protection (more than in 2006). The number of patents submitted per 1,000 inhabitants in the EU is, however, a few times higher than in Poland. FINANCIAL RESULTS OF ENTERPRISES. In the first half of 2008, a positive trend from the previous year continued. Revenues grew (by 13.9%), as did the result on business activity (by 0.9%). The second half of the year was characterised by considerable deterioration in economic and financial situation. The worldwide economic crisis arrived also in Poland which resulted in the deterioration of macroeconomic indices, slowing down the growth rate of revenues to 9.0% in the second half of the year. Total annual revenues increased by 11.3% and amounted to PLN 2,3 trillion. Costs of revenues increased by 13.5% as compared to The result on business activity amounted to PLN 99.0 billion and was lower than obtained in 2007 and amounting to PLN 28.6 billion (by 22.4%). The main reason for such drastic deterioration of the result on business activity were high losses generated on financial activity. For the whole year, they amounted to PLN 21.9 billion (as compared to PLN 4.0 billion of profit in 2007). Whereas in the first half of the year, the result on this activity was positive (PLN 1.2 billion), in the second half of the year it became negative (PLN 23.1 billion). The annual loss on the financial activity in 2008 (PLN 25.9 billion) accounted for 90.6% of the total decrease of the result on the financial activity. Largest losses on the financial activity were suffered by manufacturing (PLN 12.1 billion), trade and repair (PLN 4.6 billion), transport, storage and communication (PLN 2.8 billion). Gross financial result reached PLN 99.2 billion (decline by 22.3%), and net financial result amounted to PLN 78.6 billion (decline by 25.7%). All profitability indices went down. The main source of financing for investments by entrepreneurs are their own funds. Therefore, the deterioration of financial situation (along with other reasons) had a direct impact on the dynamics of incurred investment expenditures. In the first half of the year, expenditures increased by 13.9%, and in the second half of the year remained at the same level as in the second half of

16 MINISTRY OF ECONOMY CHALLENGES. The year 2009 is the 20 th anniversary of systemic, economic and social transition in the Eastern and Central Europe, as well as the 5 th anniversary of Poland s accession to the European Union. Both these dates encourage us to make summaries and balances, but surprisingly as it may seem, current analyses and economic reports do not focus on them. A visible deterioration of economic situation worldwide in 2008, followed by growing negative changes, is the reason why the majority of publications relate to the economic crisis and its impact on individual spheres of life. However, it is worth pointing out that the present condition of Polish economy was considerably influenced by the above mentioned reforms resulting from the transformation process, and from Poland s accession to the European Union. The combination of the transformation effect and entry to the European Union assured stability. The systemic transition process, started in the early 90s, resulted in, not only a crucial change of the political system, but also in some significant changes in the rules guiding Polish economy. Transforming the centrally planned economy to the free-market economy required, first of all: changing the ownership structure of economic entities through privatisation, abolishing state control over foreign trade, liberalising financial flows with abroad, implementing legal regulations stimulating the development of entrepreneurship and competitiveness on the domestic market, liberalising prices, and implementing internal exchange of Polish zloty and uniform exchange rate. The period when Poland was preparing for the accession, as well as the EU membership, involved very important market reforms needed in order to incorporate our economy to the European Union Single Market, i.e. reforms relating to the free movement of goods, services, capital and persons, as well as to competition rules, and social and ecological requirements. The European Union membership strengthened institutionally the process of change, and it opened new development possibilities, supported by European funds. At present, main challenges for Poland and for Polish economy in the long term are related to existing global trends, and the resulting dangers. Factors which are particularly taken into account in this context include: globalisation processes, which build up competition pressure on the economy, entrepreneurs and citizens; demographic factors, such as aging of the societies and the resulting need to change models of professional activity as well as migration; challenges related to elimination of negative results of human impact on environment. A significant part of activities started by Poland, having long-term consequences, arises from the integration and from the liabilities towards the European Union. All EU members are obliged to implement the Lisbon Strategy a multiannual programme of reforms and structural changes whose aim is to make the Community the most competitive economy in the world. To meet these requirements, it is necessary to achieve dynamic economic growth and to increase employment. The programme for implementing reforms was presented in the National reform programme (KPR) for the years The planned structural reforms would influence a potential economic growth rate as well as increase the immunity to economic shocks. They would also improve competitiveness and employment in the economy and have its long-term meaning. Priority areas of the National reform programme, which should assure appropriate conditions for the development of society and citizens, include: active society, innovative economy and efficient institutions. A long-term economic growth may be achieved thanks to development of a highly innovative branch of industry, while effective use of public funds will make efficient implementation of the pro-development policy possible. 16

17 POLAND 2009 REPORT ECONOMY The most significant areas, in which reforms and actions should be undertaken, comprise: Public finance: systemic reforms should guarantee that the convergence criteria are met, which will enable Poland s accession to the European Monetary Union. The activities undertaken should also lead to a decrease in the share of predetermined expenditures in total budget expenditures. On 16 July 2009, the Parliament (Sejm) adopted the Act on public finance. It was submitted to the second chamber of the Parliament (Senat). Competitiveness of Polish companies: to improve Poland s competitiveness and innovativeness as compared to the European Union, it is necessary to reduce administrative burden and to increase expenditures on R+D. The activities undertaken should create the image of Polish economy as knowledge based economy with high quality intellectual capital. Furthermore, significant importance is given to assuring friendly legal and institutional environment for entrepreneurship, innovativeness and investments. Labour market: National reform programme assumes an increase in the employment ratio as well as in the ratio of professional activity of women and older people, inter alia, by trainings and developing the habit of life-long learning. Furthermore, it is assumed that the informational society will develop, wide-bank internet access will be provided, and IT competences will be improved. Infrastructure and network sectors: appropriate infrastructural potential is one of the necessary conditions for proper economic development. Furthermore, the objective of the reforms is to assure energy and climate security. It is crucial to increase the share of alternative energy sources in final energy to 15%, and to use innovative solutions in the field of environmental protection. Modernisation of social security system: it is necessary to put into practice the assumptions of social insurances system reform, and to take actions postponing in time the period of employee deactivation. Health care system: reforms assume that the efficiency of the health care system will improve. Creating a modern and effective system for promoting Poland and its economy. Regional cohesion: Poland is strongly diversified geographically in terms of economic development. It is crucial to (inter alia) eliminate the differences in economic development between various regions by setting up Special Economic Zones, and by using state aid properly. Implementing economic policy conducive to the increase in work and capital productivity, as well as to higher mobility and adaptability of employees and companies, requires that focus be placed on four main pillars: infrastructure, education and science, economic regulations, and institutional and organisational solutions, in particular in the area of labour market. In the short term perspective, the main focus is placed on projects aimed to prevent the economic slowdown from affecting our country, and to direct Polish economy towards the high and sustainable development path. To achieve that objective, it is necessary to undertake some ad hoc measures to counteract direct symptoms and results of the crisis, to create new regulatory frameworks as well as to ensure synergy with structural reforms necessary. 17

18 MINISTRY OF ECONOMY Anti-crisis actions are being undertaken at various levels, within undertakings coordinated both at the EU and national level. On 28 November 2008, the European Commission presented the Rescue package for the EU economy, for which it assumed the budget of EUR 200 billion, i.e. 1.5% EU GDP. In response to the Rescue package of the European Commission, Polish government adopted the Plan for stability and development strengthening Polish economy in the light of the world economic crisis. The main objectives of the Plan are to: (1) assure stability of public finance; (2) take measures aimed at stabilising the financial sector and (3) take measures supporting the economic growth. The activities of the Ministry of Economy for stability and development comprise the following intervention areas: to increase consumption and investment demand, to strengthen the system of financing companies, to improve regulatory environment of companies, to accelerate investments from the EU funds, to develop innovativeness, and to make the labour market more flexible. 18

19 POLAND 2009 REPORT ECONOMY Table 1 Basic indicators of the economic situation 1995, (dynamic, previous year = 100) No. Specification Unit Gross domestic product (current prices) PLN billion , , , Gross domestic product (fixed prices) % Domestic demand (fixed prices) % Individual consumption from personal income (fixed prices) % Gross fixed capital formation (fixed prices) % PLN billion Industrial output % Prices of industrial output (annual average) % Prices of consumer goods and services (annual average) % Prices of consumer goods and services (dynamics December to December) % Construction and assembly PLN billion (fixed prices) % Dwellings completed thousand Total investment expenditures (fixed prices) % Gross turnover profitability rate % of which industry % Net turnover profitability rate % of which industry % Exports of goods (according to SAD and since May 2004 following SAD and EUR million 22, , , , , , , , , ,243.8 INTRASTAT) 12.1 Dynamics (previous year = 100) % Imports of goods (according to SAD and since May 2004 following SAD and EUR million 29, , , , , , , , , ,447.9 INTRASTAT)) 13.1 Dynamics (previous year = 100) % Trade turnover balance EUR million -6, , , , , , , , , , Balance on the current account of the balance of payments EUR million ,181-5,924-5,924-4,878-8,166-3,016-7,445-14,586-19, in % GDP %

20 MINISTRY OF ECONOMY No. Specification Unit Employed in national economy thousand 14,590 14,735 15,018 14,924 (annual average) person 12,729 12,663 12,615 12,728 12,880 13,334 13, Dynamics (previous year = 100) % Average employment in the economy thousand 8, , , ,050.2 person 8, , , , , , , Dynamics (previous year = 100) thousand person Number of registered unemployed (as of thousand the end of the year) person 2, , , , , , , , , , Dynamics (previous year = 100)) % Registered unemployment rate 3) (as of the 18.0 % end of the year) Average nominal monthly gross salary in the national economy PLN , , , , , , , , , in the enterprise sector PLN , , , , , , , , , Average real monthly gross salary in the national economy % in the enterprise sector % Dynamics of labour productivity (as gross value added per 1 employee % (previous year= 100) 23. State budget balance PLN million -10,100-15,391-32,358-39,403-37,043-41,417-28,361-25,063-15,956-24, in % GDP % The indicator of production volume and prices of industrial output for the years has been calculated using base prices. For 1995, it was calculated on the basis of producer prices. Profitability indicators in the whole economy and in the industry sector are calculated for businesses exceeding 50 employees in the mining, quarrying and in the manufacturing sectors, while in other sectors they are calculated for businesses exceeding 20 employees (in 1995); data is calculated for businesses exceeding 49 employees in all economy sectors data takes into accounts both workers on individual farms in the sector of agriculture using the results of the National Agricultural Census 1996 (numerator), the National Population and Housing Census 2002 and the National Agricultural Census 2002 (denominator). Data on the amount and dynamics of foreign trade in 1995 is given in USD million. Source: CSO, NBP and Analyses and Forecasting Department, Ministry of Economy calculations.