We Can Still Win in a World of Instability

Over the past three decades, Poland has become one of the global development leaders. GDP per capita valued at purchasing power parity grew by 240 percent to more than USD 44,000. We have already left nine EU countries behind, and Spain and Italy are just within our reach, which may be confirmed in the coming years. What can we do to keep this trend going and not drop out of the race as others have?

Success is not guaranteed

There is no doubt that the Polish economy, along with entrepreneurs and employees, has enjoyed massive success. We have reached 80 percent of the EU average in terms of productivity and income and, for the first time in history, we are 50 percent closer to the current global technology leader, the US. Our economy ranks 20th with nominal GDP amounting to USD 811 billion in 2023. According to European Commission reports, the overall parameters of macroeconomic stability place us among the leading European countries. This has been accompanied by a reduction in social inequalities.

Unfortunately, we have fallen slightly in democracy and corruption rankings over the same period, as a country of moderate institutional strength, which media reports attest to daily. Concerns include inflation trends, the rapid growth of public debt-to-GDP ratio and low innovation. One should consider though that the EU’s share of global GDP has shrunk from 25 percent in 1990 to 15 percent in 2023, while Japan, which was the world’s second economy, witnessed a decline from 17 percent to only around 4 percent. This means that we are growing faster, but on a continent mired in stagnation. Western Europe and Japan show that success cannot be taken for granted, especially given the ongoing geopolitical and economic storm when it would be easy to fall overboard.

There are currently more than 50 active armed conflicts around the world – the most since the end of World War II. Globalisation is on the retreat with global trade becoming fragmented. According to the WTO, there have been over 3,000 new restrictions on international trade since 2019, which have disrupted global supply chains. Trade wars are likely to intensify under the new US administration and will not only affect China, but in many ways the EU as well. The US has been focused for more than six years on rebuilding its economic strength, rapidly increasing its lead over the EU and effectively putting pressure on China. The latter, in turn, is effectively displacing European industrial products locally and on global markets.

Global instability is apparent in the events of the last few weeks, with Russia’s escalation of the war in Ukraine through the introduction of North Korean troops into the conflict, the collapse of the 50-year regime of the al-Assad family in Syria, Israel’s ongoing war against Hamas and Hezbollah supported by Shiite countries, the attempted coup in South Korea, the collapse of governments in Germany and France, and the riots in Georgia.

The IMF forecasts a slight slowdown in global economic growth from 3.3 percent in 2024 to 3.2 percent in 2025, but stagnation is expected in many regions such as the eurozone or South America. A new architecture of security and international cooperation is emerging, while new technologies, climate transition and demographics are reshaping the global economic model. As a result, the world is becoming more unpredictable and volatile, posing a serious risk to the stable growth trajectory of economies and companies. In such conditions, it becomes crucial to build resilience at both the state and business level.

How to build the resilience of the Polish economy

A stable economy is based on a number of key pillars, which are analysed in international rankings, such as OECD, European Commission, World Bank and IMF reports or the Global Competitiveness Index. Based on these analyses, it is possible to identify 10 main factors that will promote resilience and are fundamental to the development of the Polish economy:

1. Macroeconomic stability – which is generally high, except for inflation above the National Bank of Poland target by 2026.

2. Strong state institutions – economic institutions (e.g., the effectiveness of the tax system, development institutions) work pretty well, but the justice system, the complexity of the tax system, low political culture and overregulation are the Achilles’ heel of our development model.

3. Investments in human capital – here again, according to international rankings, we have high-quality education, but the modernity of curricula and weakness at a univer-sity level result in a loss of potential (e.g., talented students going abroad).

4. A competitive private sector – we are cost-competitive and have a good pool of qualified staff (current account surplus), but globally there is a very strong correlation between productivity levels and capital stock, which we don’t have enough of (e.g., low private investment, high business fragmentation, low internationalisation).

5. Balanced public finances – between 2016 and 2023, the public debt-to-GDP ratio fell by about 3 percentage points, which means that we are a relatively low-indebted country. But now that ratio is growing at the fastest rate ever – it has increased by 10 percentage points in three years, while the expenditure structure is not sufficiently conducive to development.

6. Infrastructure development – Poland has made a quantum leap in infrastructure quality, but projects such as the Central Communication Port, offshore wind farms in the Baltic Sea, transmission lines or nuclear power plants are crucial for Poland to reach the level of the most developed countries.

7. Innovation and digitalisation – despite the positive trends in R&D spending growth and venture capital investment, we remain among the countries with the lowest rates of patents, global brands in new technology sectors and adoption of cloud computing or AI in companies.

8. Stability of the financial system – it is very high in terms of capital and liquidity as well as loan availability, as long as we do not ruin this ourselves (see the ongoing disputes challenging the WIBOR reference rate used in credit agreements). What is missing is a stronger capital market and a stronger funded pillar of the pension system.

9. Labour market efficiency – in terms of regulation, the market is quite efficient (apart from so-called “junk contracts’’, i.e. agreements aimed at circumventing labour law), but demographics pose a gigantic threat.

10. Openness to international trade – we are an open economy without strong export brands of our own and rely on offshoring. On the one hand, this is an opportunity when the supply chain is shortened, but it is also a threat given the dramatic situation of German industry (especially the automotive sector).

This is, of course, a simplified overview, but eight priorities for building the resilience of the Polish economy can be drawn from it: education, innovation, cheap green energy, infrastructure investments, balanced finances, tax system deregulation and simplification, transparency and efficiency in the justice system and security.

Entrepreneur, transform your business or die!

In an era of technological revolution, it is usual for the more advanced countries to develop faster than their imitators, who take a while to adopt novel solutions. In other words, technological leaders, whether they are countries or companies, get the first-mover advantage. To assess Poland’s position in this technological race, it is enough to consider which Polish brands are global leaders in their sectors, and how many of them there are.

In the US, four companies alone – NVIDIA, Microsoft, Google and Salesforce – have invested in 300 high-tech companies in the last two years through their corporate venture capital funds. The top 10 areas of investment are: GenAI, productivity SaaS, biotechnologies and diagnostics, big data, robotics and drones, cybersecurity, AGI research, ClimateTech, autonomous vehicles and EdTech. Those will be the real battlegrounds for competitiveness in the next decade. This requires capital and scientists, as well as business competence and dynamism. Poland only ranks 24th in the EU innovation ranking (European Innovation Scoreboard 2023). Moreover, Europe as a whole is lagging far behind in this race, tripping over its own feet because of overregulation, poor education and inertia.

Dynamic organisations are those that understand the competitive battleground, build appropriate strategies, react quickly to threats, and are able to scale up their opera-tions thanks to a talented team and the implementation of new technologies or business models. Without the ability to adapt to change, even the largest companies can quickly lose their competitiveness, as demonstrated by the histories of NVIDIA and Intel. Transformation must be baked into the DNA of every organisation, from the board to the rank and file. Polish companies should quickly adopt cloud computing, AI and robotics, which provide process automation and data analytics. The Internet of Things (IoT), in turn, also has enormous potential for optimising production and logistics. Renewable energy availability builds resilience to climate change and high energy prices, and provides security throughout the supply chain. And the list goes on. The faster the transformation, the greater the resilience of the business model and the opportunities to grow.

Transformation window

It is crucial to take advantage of the next six years – until 2030, while Poland still has access to significant EU funds and benefits from a stable demographic situation in the labour market. Our potential GDP growth is currently 3.5 percent annually, while a decade from now it will be closer to 2.5 percent. At that time, society will start to age rapidly and there will be real tensions in public finances and the labour market. The problem of business succession will also arise. The answer to these challenges should be a sharp increase of investment in new technologies, infrastructure and the energy system. It’s now or never, because in a few years, weaker economic potential will limit opportunities for investment.

Poland faces a historic threat, but also an opportunity. A decade of economic and geopolitical turmoil calls for action to build the resilience of the economy and businesses. We can benefit from some of the trends, such as nearshoring or the growing importance of human capital rather than financial capital, of which we have little. In the 1980s, Lech Wałęsa promised that Poland would become a second Japan. If we do not take advantage of the current time window, that risk may become a reality in terms of development and demographics. ©Ⓟ