MINISTRY OF ECONOMY POLAND 2006 REPORT ECONOMY

Transcription

1 MINISTRY OF ECONOMY POLAND 2006 REPORT ECONOMY WARSAW 2006

2 Prepared by: Ministry of Economy Analyses and Forecasting Department: Edward Dobrzyński, Michał Drobniak, Andrzej Grabarczyk, Monika Krupa-Leończyk, Michał Listwoń, Michał Mierzwa, Kazimierz Miszczyk, Karol Pęczak, Beata Sitek, Wiesław Stempkowicz, Ryszard Szelągowski, Maria Szkutnicka-Pieniążek, Elżbieta Szułczyńska, Michał Szymczuk, Stanisław Upława, Krzysztof Wójtowicz, Marcin Zelman In co-operation with: Energy Department, Support Instruments Department, Department of Trade Policy, Industry Department, Economic Regulation Department, Oil and Gas Department, Economic Development Department, Department of European Affairs, Tourism Department, Development of Entrepreneurship Competitiveness Department, Office for Diversification of Oil and Gas Supply Supervised by: Grażyna Henclewska Director of the Analyses and Forecasting Department Aneta Piątkowska Deputy Director of the Analyses and Forecasting Department Translation: Letterman Sp. z o.o. Agencja Tłumaczy Zawodowych ul. Kremerowska 15/ Kraków ISSN Printed by: ZWP MGiP. Zam. 1263/05 2

3 CONTENTS SYNTHESIS... 9 PART I POLAND AND THE WORLD ECONOMY Principal trends in the world economy in Economic growth United States European Union Japan Developing countries Prices of energy commodities Trade turnover Poland in the OECD 10 years of membership Poland in the forum of OECD OECD reviews Activity in selected areas European Union Stocktaking of the Polish accession to the EU Macroeconomic perspective Absorption of the EU funds Lisbon Strategy Internal Market Harmonisation of the economic legislation Free movement of goods Free movement of services Free movement of persons recognition of qualifications

4 MINISTRY OF ECONOMY Adjustments in the field of energy and industrial policies Internal market and Poland s economic relations with third countries The future of the internal market Competitiveness of the Polish Economy International Competitiveness Rankings Poland as Compared with the EU Member States PART II POLAND S ECONOMIC DEVELOPMENT IN 2005 (AND IN THE 1 ST HALF OF 2006) Gross Domestic Product GDP and growth drivers Domestic demand Impact of investment on GDP dynamics Impact of exports on GDP dynamics Role of sectors in GDP formation Gross Domestic Product per capita in Poland and selected countries Labour market Employed Persons Unemployment and unemployment rate Structural mismatch on the labour market Labour market structure according to age Impact of education on the size of unemployment Territorial differentiation of the labour market Gender differentiation of the labour market Salaries and labour productivity

5 POLSKA 2006 RAPORT O STANIE GOSPODARKI 7. Households and consumption Income of households Consumption and Savings Durable goods in households Inequalities of income Inflation and monetary policy Prices Consumer prices Prices of industrial production and construction/assembly production Monetary Policy Conditions for monetary policy implementation The monetary policy implementation in Instruments of monetary policy implementation The public finances and fiscal policy State Budget The public finances Meeting the Treaty of Maastricht criteria Industry Dynamics and structure of industrial output Industrial output dynamics Industrial output structure by sections and divisions Industrial output in the first months of Essential problems of industry. Developments in selected sectors Hard coal mining Shipbuilding Light industry Chemical industry REACH Electronic industry

6 MINISTRY OF ECONOMY 11. Poland s energy security Situation in fuel/energy market The security of the Polish power system Situation in the power sector in Renewable energy sources Efficiency of energy use in the economy Security of oil and gas sectors Identifying threats Diversification of supplies of energy carriers 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 Housing General problems of the housing industry Housing in Employment Salaries and labour productivity Number of units in the construction industry Financial standing Assessment of the construction industry performance Domestic trade Number and structure of businesses Employment. Number of persons employed Salaries and labour productivity Retail and wholesale sales Economic and financial standing General problems of domestic trade

7 POLSKA 2006 RAPORT O STANIE GOSPODARKI 14. Foreign trade Trends in Polish Foreign Trade in Geographical structure of foreign trade turnover in Changes in Commodity Structure of Foreign Trade Turnover Foreign trade in the 1st half of Tourism Situation in tourism in Arrivals to Poland Tourist arrivals Foreign expenditures in Poland Tourism of the Polish residents Domestic tourism of the Polish residents Polish residents travels abroad Tourist accommodation in Poland General tourism issues Enterprises Ownership structure and ownership transition in State-owned companies Ownership transition in State-owned companies Impact of structural transitions on the development of the Polish economy Changes in the participation of the ownership sectors in generating gross added value. The role of the private sector in economic growth Development of small enterprises Changes in economic sectors and sections of the economy Financial standing Revenues and costs of obtaining revenues Prime Costs Financial result

8 MINISTRY OF ECONOMY Profitability and financial liquidity indicators Debt Financial standing in the first half of Investment outlays Inflow of FDI to Poland The role and importance of companies with foreign capital FDI influx volume FDI influx by geographical location FDI influx by sector Innovation of Polish enterprises and their environment Entrepreneurship and barriers to enterprise development Economic regulations Barriers to enterprise development Enterprise support instruments Instrument supporting innovation of enterprises Financial instruments for supporting exports (including simplification of customs and tax procedures for exporters) Financial support for investments Special Economic Zones State aid Instruments for developing a network of institutions in the business environment

9 SYNTHESIS The high rate of economic growth at the level of at least 5% per year is the foundation for Poland s socio-economic growth in the years to come. The factors which enable the economic growth will be: investments domestic, supported by structural funds and Cohesion Fund and direct foreign investment, as well as exports. The condition of the Polish economy in 2005 should be generally assessed as good. In 2006 macroeconomic indicators also look favourable. After an unusally high growth of GDP in the 1 st quarter of 2004, which was earlier anticipated and was directly connected with Poland s accession to the EU, followed a few quarters in which the growth of GDP was lower and constantly decreasing. On the other hand, currently (mid-2006) was the fifth successive quarter of accelerated growth of GDP may be stated. In the first half of 2006, an economic growth of 5.4 % was noted, much higher than a year before. What is most important, this trend may be expected to continue in future. The Analyses and Forecasting Department of the Ministry of Economy estimates that an economic growth of above 5% is expected to be maintained throughout 2006 and in Domestic demand is becoming the major growth factor, and it should be stressed that this also includes investments. At the same time it should be noted that the contribution of net exports to the growth of GDP continues to be positive. The intensification of investment processes in the second half of the year will have an impact on the dynamism of import, particularly in relation to investment. Currently the implementation of the current economic policy is not seriously endangered. The strengthening of macroeconomic foundations is observed in 2006, including: a relatively high rate of economic growth, higher dynamics of outlays on investment projects, 9

10 MINISTRY OF ECONOMY a much higher growth of industrial output than in the previous year, the growing construction and assembly production, good results of commercial enterprises, a high growth of exports, with a reduced growth of imports, significantly reduced current account deficit in the balance of payments, relatively low inflation pressures, however still growing, a lower unemployment rate, rise in employment level a relatively stable and strong Polish zloty. The level of development of the Polish economy is still far from being satisfactory. Considering GDP per capita, Poland is ranked among the lowest-rated countries of the EU-25, reaching only ca. 50% of the EU average. The Polish economy is characterised by a relatively low competitiveness ad innovativeness and is still too slow in implementing structural reforms. EXTERNALITIES. The economic situation of Poland is significantly influenced by the situation in the global economy, and, in particular, the economic situation of our most important trade partners, i.e. EU countries. This results from the fact that the Polish economy is becoming increasingly connected with the economies of those states. Over 71% of Polish foreign trade is with EU countries, including export to the EU countries which accounts for 78% of the total Polish export, while the import amounts to 66% of the total. The economic boom in those countries is not without impact on the export potential of the Polish economy, while economic stagnation is an important limiting factor. In addition to the steadily growing exchange of commodities, we are increasingly tied with those countries with growing capital links. Around 70% of foreign direct investment in Poland originate from the EU-15 countries. Many big companies from the EU operate in Poland, so the overall economic situation in Europe influ- 10

11 POLSKA 2006 RAPORT O STANIE GOSPODARKI ences their financial condition. Most of the products manufactured by such firms are exported, especially to EU countries. The 2005 results show that, despite persistent high petrol prices, the global economy developed rapidly. Among the countries which showed the highest rate of economic development and stimulating the global economic situation were the United States (although in this case the rate of growth slightly slowed down), China, India, Japan and other countries of South-Eastern Asia. On the other hand, the economy of the EU countries developed at a slower pace as compared to 2004, and a little slower than expected. The European Committee estimates that in 2006 the economy of the EU-25 countries will develop more dynamically. The highest growth is observed among new EU members states. COMPETITIVENESS OF THE POLISH ECONOMY. In the publications of international rankings the competitiveness of the Polish economy is ranked relatively low, no matter what criteria are adopted. In the three most important reports devoted to competitiveness Poland was ranked somewhere in the middle, and generally lagged behind other Central and Eastern European states. Poland is ranked significantly lower than the current condition of Polish enterprises and their activity in the single European market might suggest. This might be because the assessment of competitiveness recognises barriers which do not directly influence the current situation but, on a longer term, affect the condition of the economy and businesses. Also, when compared with EU countries in terms of structural socio-economic indicators, Poland, as a rule, attains results far below the EU average. Among the factors weakening the country s competitive position, the following should be indicated: low standards of public institutions and infrastructure, the unstable system of public finance, as well as high unemployment and low employment rates. Existing administrative barriers for entrepreneurs are also mentioned. Numerous and frequently changed procedures connected with conducting business contribute to the increased costs of business operations. 11

12 MINISTRY OF ECONOMY Among the strengths of the Polish economy are good macroeconomic results (a relatively high economic growth, a reduced rate of inflation), low costs of labour in industry, fast development of exports and the fact that Poland is attractive for foreign investors. ECONOMIC GROWTH. In 2004, a high economic growth was noted (5.3%), resulting from both the entry of the Polish economy in a new phase of the economic cycle, and the influence of a certain shock for the Polish economy connected with the accession to the EU in May This event has an impact on the results of 2004 and 2005 ( base effect ). In 2005 the rate of GDP growth was lower than a year before (3.4%). On the other hand, the rate of the GDP growth in 2005 increased in each quarter. The total consumption had the most important impact on the economic growth on the demand side. The rate of increase in gross outlays on fixed assets was higher than the rate of GDP growth. An equally high dynamics of exports of goods and services (higher than the import dynamism) was translated into a positive input of the net export to the growth of GDP. In 2005, domestic demand increased by 2.2%, while in 2004 it was 6.0%. An increase in gross fixed capital formation in 2005 was similar to the figure noted in the previous year (6.5%), while the increase in stock was much lower. The dynamics of investments was influenced by the EU structural funds. The rate of growth of private consumption in 2005 was lower than in the previous year. An improvement of the situation in the labour market contributed to increased revenues from hired labour, while social benefits remained at the level similar to Significant sources of financing the increase in consumption in 2005 were the increased income from private business activity and revenues from property ownership. An important role in the increase of income was due to the payments to farmers under the Common Agricultural Policy in relation with Poland s accession to the European Union. 12

13 POLSKA 2006 RAPORT O STANIE GOSPODARKI The year 2005 was the fourth year in succession in which both export and import increased. Notwithstanding the strengthening of the exchange rate, the dynamism of exports was higher than the import dynamics, which resulted in a positive input by the net export to the real growth of GDP, after a negative input of An internal imbalance measured in the drop in foreign savings in relation to GDP, from 4.3% in 2004 to 1.5% in 2005, was limited. To a large extent this was a result of an improved balance in the foreign exchange of commodities. A drop in the rate of foreign savings was accompanied by an increased ratio of savings in the national economy to GDP, from 15.8% in 2004 to 17.6% in A rise in the gross value added in 2005 was 3.2% and was primarily the effect of the boom in market services and industry. A decisive factor behind growth in industrial production was the situation in the processing industry, the dynamics of which was connected with growing exports and the gradually restored domestic demand. GDP generated in 2005 was at the level of billion PLN (PLN 25.7 thousand per capita). In the context of a relatively high economic growth in Poland, growing disparities between different Polish regions in the second half of the 1990s are noteworthy. In 1995 the distribution of a per capita GDP in the richest and the most disadvantaged voivodships 1 was 1.67, and in 2003, this grew to INVESTMENTS. Investments play a key role in the economic growth and reflect the condition of the economy and its development perspectives. After a dynamic growth of investment outlays, particularly noticeable in the mid-1990s, a slump could clearly be seen in It was chiefly connected with the poor business outlook and the worsening of the financial condition of enterprises. Since 2003, outlays on investment have been growing, however to an extent which is not sufficient to satisfy the needs of modernisation of the Polish economy. In 2005 investment outlays were higher by 6.6% than in the 1 Taking into account of the new administrative division of the country after the administrative reform of

14 MINISTRY OF ECONOMY previous year. The highest growth of investment outlays was noted in financial intermediation, mining and construction. As compared to the previous year, both the number of newly opened investment projects and their cost-estimate value grew. The main source of financing investment are own resources of enterprises. Entrepreneurs are reluctant to make use of bank loans, though these are relatively easily available, their interest rate is steadily falling and the costs of obtaining credit decrease. At the same time it should be stressed that the value of investments does not reflect the potential capacity of entrepreneurs in this respect, as enterprises have free financial resources (an exceptionally favourable financial and economic situation in 2004 and a good situation in 2005 only translated into higher liquidity indicators and a higher value of deposits). Investors are cautious in their ventures and wait for the stabilisation of economic growth. They also point out other problems which hamper their investment (the absence of spatial development plans, inadequate development of the infrastructure, unregulated ownership issues, complicated procedures to acquire EU funds). The level and dynamism of the inflow of direct foreign investment to Poland was highly differentiated in recent years. In the second half of the 1990s, the value of investments in Poland by foreign entities grew steadily form 3.7 billion USD in 1995 to 9,3 billion USD in After a few less favourable years, an increased inflow of foreign investment to Poland was observed in ( 12.9 billion USD, in 2004; 7.7 billion USD in 2005). It should also be noted that the amount of resources expended to the purchase of stocks and shares in privatised enterprises steadily decreases, whilst the value of greenfield investments increases. In the geographic structure of the inflow of FDI to Poland, enterprises from EU countries tend to be of primary importance. The largest investments in Poland were by Dutch, German and French firms. The highest FDI were in the manufacturing industry (the manufacture of transport equipment, food products, beverages and tobacco products) and in financial intermediation, trade and repairs. 14

15 POLSKA 2006 RAPORT O STANIE GOSPODARKI INDUSTRY. In , the Polish economy was characterised by low growth in industrial output. Later the situation significantly improved. In 2003, the industrial output rose by 8.4%, whilst in 2004 by 12.6%. The factor influencing the production dynamics was increased external and domestic demand. In 2005 the rate of the production growth dropped to 3.8%. Production grew in all the three sections of industry. In 2005 production in 14 out of 21 sections of manufacturing industry increased, as compared to 2004; the highest growth was noted in the manufacture of medical instruments and in the manufacture of machinery and equipment. As regards mining and quarrying, production dropped in the mining of coal and lignite, which resulted from a lower demand by the smelting industry for coke. A favourable situation was in copper mining, as a result of increased demand for this raw material. In industrial divisions and groups considered as the carriers of technological progress industry, growth in production in 2005 amounted to 6.4% and was much lower than the growth reached in 2003 and However, the proportion of these products in the value of overall industrial output, similarly to 2004, 15.9%. In subsequent years the public sector production dropped, whilst a dynamic rise was seen in the private sector production. As a result, a gradual increase in the share of private sector production in the total production sold was observed. In 2005 this proportion was 83.1% in current prices, as compared with 71.3% in CONSTRUCTION. Following the continuing economic boom in 2005, a rise in construction and assembly production was noted after a few years of downturn in the construction sector. A 5.0% growth was the result of growing sales in both repair and investment projects. The process of revival in the construction sector is evidenced by a very dynamic growth of construction and assembly production by entrepreneurs dealing with side preparation. 15

16 MINISTRY OF ECONOMY In 2005 over 114 thousand housing units were completed, i.e. 5.5% more than in An increase in the number of housing units completed was noted only as regards communal housing and apartments for sale or to let. Individual investors completed 2.4% more apartments than in DOMESTIC TRADE. The value of retail sales by commercial and non-commercial businesses employing more than 9 persons employed each increased by 1.5% as compared with The highest growth was noted in the following sections: furniture, RTV and household equipment, pharmaceutical products, cosmetics and orthopaedic equipment. The value of wholesale sales of commercial enterprises increased by 5.2% in current prices as compared with 13.4% in The highest growth of sales was registered in tobacco products, machines and equipment, as well as non-agricultural semi-finished products and byproducts. The main reason of lower growth in commercial products sold than in 2004 was the effect of a high statistical base after Poland s accession to the European Union a significant rise of demand was reported, both foreign and domestic. As a result the sales of goods and products in 2004 reached a very high level. FOREIGN TRADE. The revival in trade exchange observed in the recent years continued also in The value of trade turnover in exports increased by 21.1% in USD and by 19.6% in EUR, while in imports, by 15.2% and 13.8% respectively. Following the rise of foreign currency prices (by ca. 12% in USD and by ca. 8% in EUR), the rate of volume growth was lower than the rate of growth of the value of the turnover, and amounted to 10.7% for export and 4.5% for import. A higher rate of growth in exports over imports causes a gradual reduction of a negative commodity turnover account balance and a 2 Fixed prices 16

17 POLSKA 2006 RAPORT O STANIE GOSPODARKI lower current account deficit. During the recent 5 years the commodities turnover deficit fell from USD 12.3 billion to USD 2.7 billion The year 2005 brought changes in the geographic structure of commodities turnover. The most important change was a decrease in the developed countries share in the overall turnover (their share dropped by 1.6 p.p. in export and by 2.6 p.p. in import). At the same time the deficit in the trade exchange with other countries which in 2004 amounted to EUR 3.3 billion, was transformed into a surplus of over EUR 0.6 billion, notwithstanding the weak economic situation in Germany Poland s main trade partner. Among other markets, trade with China and Russia also declined. As a result of higher imports from the above countries the total trade exchange deficit with these countries accounted for over 80% of the total deficit in the Polish foreign commodity exchange in The most extensive changes in the structure of commodities in the foreign trade turnover were related with the significant improvement in the exchange balance in the group of electrical machinery production, and in particular in the sector of manufacture of means of transportation, in which the value of exports increased by nearly 2 EUR billion, while the import decreased by EUR 1 billion. Another group of commodities in which a significant improvement in the turnover balance was noted in 2005 were agricultural; and food products. As regards products of mineral origin, unfavourable price relations resulted in more than a four times higher rate of growth of imports (mainly oil and gas), as compared with exports (mainly coal and coke). The high deficit, which persisted in this group of commodities, became higher than before. LABOUR MARKET. The year 2005 was the second year in which an improvement of the labour market situation was noted. The average employment in the sector of enterprises increased by 1.9% was compared with 2004 and amounted to 4,773 thousand. The growth in employment combined with the growing migration to seek jobs in other EU countries contributed to the lower unemployment rate. At the 17

18 MINISTRY OF ECONOMY end of 2005 it was 17.6% (1.4 percentage point less than in the previous year). At the same time, still over 2.7 million people remained unemployed. The average monthly gross salary in the economy was PLN in 2005, which means that real salary increased by 2.6%. The problem of the Polish labour market is a significant proportion of individuals in the productive age group who neither work nor seek jobs. This refers mainly to young people and persons aged 45 or more. At present Poland is a country with the lowest employment rate among the EU countries. In 2005 the rate of employment was 45,2% (0.9 p.p. more than in the previous year). In 2005, for the first time from 1992, an increase of the economic activity rate was noted, reaching the level of 54.9%. The large extent of the grey zone may be indicated as being one of other labour market problems in Poland, which is, among other aspects, a result of the high non-wages costs of labour. The mobility of workers is also low, while their qualifications often do not meet labour market needs, which constitutes the main barrier to changes to the sectoral structure of the Polish economy. Moreover, In addition, despite visible improvement (a lower number of accidents at work and of the average number of sick leaves caused by such accidents per person employed), work quality and safety are still far from satisfactory. PRICES. Among priority tasks of the macroeconomic policy in Poland in the recent dozen years or so, was to lower inflation. In 1999 a one-digit average annual level of inflation was reached for the first time (7.3%). The declining trend continued in the years that followed, so in 2003 the average annual increase in prices of consumption goods and services amounted to 0.8%. As a result of Poland s accession to the European Union, in relation with the increasing domestic demand, higher dynamics in the export of food articles to EU countries and higher prices of raw materials in global markets, the rate of growth of consumption prices increased by 3.5%. 18

19 POLSKA 2006 RAPORT O STANIE GOSPODARKI In 2005 the Union effect gradually faded out and inflation dropped again to an average annual level of 2.1% and 0.7% from December 2004 to December Apart from the rapidly receding pro-inflationary factors connected with Poland s accession to the European Union, lower growth in prices was influenced by: a lower than expected growth of prices for agricultural products, appreciation of the Polish zloty and reduced growth of prices of imported raw materials, a lower domestic demand and the results of a tighter monetary policy a few quarters before that In the second half of the year, a significant influence on the CPI level of inflation was a rise in controlled prices by 3.4%. Average annual producer prices in industry grew in 2005 at much lower rate than in the previous year (0.7% as compared with 7.0%). A lower rate of growth concerned chiefly prices in the mining and quarrying section. The level of prices in manufacturing decreased by 0.3%. The drop in prices was noted in 15 out of 21 sections of the manufacturing industry, the highest in RTV equipment. The average annual prices in construction and assembly production increased by 3.1% in MONETARY POLICY. The Monetary Policy Council (MPC) based its monetary policy on direct inflationary target strategy in In the Monetary Policy Strategy beyond 2003, the MPC adopted permanent inflation target set at 2.5% with a symmetrical tolerance range for deviations of +/- 1 p. p. In relation with a decreasing inflation level in 2005, in April MPC changed its restrictive approach in the monetary policy to neutral, while in June it adopted a more liberal approach. In March a series of five reductions of interest rates began (in total by 2 p.p.). In 2006 two successive reductions of interest rates took place, at 0.25 p.p. each. As a result, the reference rate fell from 4.5% to 4.0%. PUBLIC FINANCES. In the longer term maintaining a high rate of economic growth in Poland will only be possible only by a thorough 19

20 MINISTRY OF ECONOMY reform of public finances. The unfavourable situation in the public finance sectors manifests itself in the form of a flawed structure of expenses and persistent deficit, which even in the period of economic pick-up reached 3% of GDP, while during the economic downturn reached nearly 6% GDP. A deficit of public finance which persists for a long time, causes the rise in public debt and in the costs of debt servicing and has adverse effects on the economic situation and growth perspectives. Without maintaining a high rate of economic growth in the longer term it will not be possible to solve the issue of low employment, to limit the scope of social exclusion and poverty and to bridge the development gap between our country and other EU states. The current structure of budgetary expenses implies a limited freedom of the government in deciding about the amount of the state budget deficit. In the proportion of expenses determined by parliamentary Acts or earlier adopted obligations in overall budgetary expenses grew steadily from a level of 53.7% to 72.5%, except for In 2005, the state budget receipts totalled at PLN 179,8 billion and exceeded the planned amount by 2.9%. Expenditures from the state budget amounted to PLN billion and were executed at the level of 99.3%. As a result of the higher level of the execution of receipts and lower level of expenditures as compared with the amount planned, the real budget deficit was lower than planned by PLN 6.6 billion (19.0%) and amounted to PLN 28.4 billion. OWNERSHIP STRUCTURE OF THE ECONOMY In the beginning of the process of transition, the majority of Polish enterprises were state-owned. The growing role of the private sector in the 1990s occurred as a result of the rapid development of the sector of small and medium-sized enterprises and the privatisation of state-owned medium-sized enterprises. As a result, in the number of business entities almost doubled, from 1.9 million to 3.6 million, of which private businesses accounted for 96.2% in An increased role of the private sector was one of the factors which made it possi- 20