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What do the recent national elections mean for Poland’s economy?

What do the recent national elections mean for Poland’s economy?

Optimized-AdobeStock_80613896 Poland's main opposition party, Law and Justice (PiS), easily defeated the ruling centrist Civic Platform majority in the country's parliamentary elections on October 25, 2015. The party's influential leader, Jarosław Kaczyński, nominated a relatively unknown coalminer's daughter and PiS loyalist, Beata Szydło, prime minister.

PiS's win marks a comeback for the party and for Kaczyński in particular whose influence will surely grow (too much?). Jarosław co-founded PiS with his late twin brother, Lech, in 2001 and served as prime minister in 2006-7 while his brother was president. Lech died tragically in an airplane crash in Smolensk, Russia, in 2010, along with several senior cabinet members. Today, Jarosław, a Eurosceptic, has advocated a regional Central European alliance against Vladimir Putin's Russia.

Kaczyński's choice of prime minister comes as no surprise from a party that campaigned with a populist and socially conservative agenda that collected votes from the country's poorer regions. Beata Szydło's nomination is also the result of shrewd political calculations. Kaczyński is a deeply polarizing figure in Poland, while Szydło is far more palatable (both at home and abroad).

PiS's rather controversial political program included:

  • bank tax on of 0.39% on assets (banks currently pay a regular 19% corporate income tax banks and contribute to the banking guarantee fund)

  • new tax on foreign-owned supermarkets (supermarkets presently pay 19% corporate income tax)

  • the reversal of a previous hike in the legal retirement age (from 67 to 65 for men)

  • ban on abortions and in-vitro fertilization

  • lower taxes for the poor

  • family-focused welfare spending for low-paid Poles (including a monthly subsidy of 500 złotys per child) and a hostile--xenophobic even--stance against immigration in the context of Europe's migrant crisis.

    In line with Szydło's mining roots, PiS also took a pro-coal stance (which supplies roughly 90% of the country's electricity) in the face of environmentalist meddling from Germany and the EU.

  • Poland's economic prospects

    All this has left investors and analysts worried Poland's future macroeconomic direction, but should they be? The country has made great strides in recent years and current economic indicators are positive.

    Poland grew by nearly 24% between 2008-2014, and was the only economy in the EU to avoid recession in 2008. It is expected to grow by 3.5% this year (but will likely drop below 3% in 2016-17), and unemployment recently fell below 10%. Public debt is only 50% of GDP, lower than in most other EU countries.

    Poland has a firm economic foundation that will be hard to derail, even with the populist program put forth by PiS.

    Looking ahead. Our take:

    Don't expect new policy measures such as the bank tax on assets and the tax on foreign-owned supermarkets to affect growth but they will certainly dampen investor confidence.

    Do expect PiS to begin purging state institutions of posts occupied by individuals with different party allegiances. Changes will affect state-controlled companies, the National Bank of Poland, the National Broadcasting Council, and the Office of Competition and Consumer Protection. This in itself is fairly standard practice with every change of administration in Poland, but Kaczyński sees the ruling Civic Platform party as an inherently corrupt post-communist elite that needs to be removed.

    Do expect Kaczyński to exert his growing power and influence from behind the scenes. As the party's co-founder and leader, Kaczyński controls PiS's parliamentary group (all of the party's Sejm candidates are approved by him). He will invariably have a say in all of Poland's major policy decisions.

    Don't expect changes to Poland's inefficient commercial court system, rigid labor code, bureaucratic red tape, and the country's burdensome tax system that foreign investors have been calling for over the last few years.

    Do expect Poland to continue to benefit from the second round of EU structural and cohesion funds, a strong source of growth, which will run through 2020 and will serve to support infrastructure projects, develop the energy industry, and stimulate innovation.

    Do also expect greater tensions with Brussels. Kaczyński will certainly live up to his reputation as Europe's enfant terrible. Thorny issues on the table in Brussels include the ongoing migrant crisis, climate change and the EU's target of 27% renewable energy sources by 2030, a possible Brexit (a large number of Poles live in the UK), and fellow Pole Donald Tusk, the current president of the European Council, who is loathed by Kaczyński.

    Don't expect better or more constructive relations with Russia. Vladimir Putin is very clearly the external threat for Kaczyński (Lech died on Russian soil and in circumstances that Kaczyński suggests is the result of Russian foul play), but don't expect this to result in warmer ties with Germany either.

    Finally, do expect Speyside to keep foreign investors up-to-speed on what really matters with our expert insights and deep intelligence based on the latest developments coming out of Poland.

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    Ian Herbison

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