Poland Has What It Takes to Face Crises
“The fundamentals of the Polish economy compared to Europe are strong, as demonstrated in 2020 and 2021. Poland benefits, among others, from changes in the global economy which shorten supply chains,” says Jerzy Kwieciński, Vice-President of Bank Pekao and Head of Corporate Banking, Markets and Investment Banking
Will Poland’s banks survive 2023?
To answer this question, I will use an analogy. We do not ask ourselves: is the world changing? The question is: how is the world changing? I have no doubt that the banks will survive, but I do wonder how their role will change. Let’s look back to 2020, when the coronavirus pandemic broke out and the economic crisis began. We did not know then how the banks would cope, and they did so with flying colours. The sector is changing. Just 30 years ago, a bank was associated with a building. Customers would walk into a branch to do business. Ten years ago, a bank was associated mainly with the ATMs where we withdrew money. Today, a bank is associated primarily with a smartphone and mobile banking app. The last two years have not only made banks more digital; above all, customers have started to use banking services more digitally. Banks will change because the environment and the market are changing.
What is the key challenge facing the banking industry in the near future?
What will be key this year is whether banks can finance economic growth. We have to get used to the fact that turbulence, changes in our economic environment, will become common. While there has been relatively little turbulence in recent decades, to the point that black swans were considered a purely theoretical concept, we have seen a new black swan year after year since the outbreak of the pandemic. This year is less unexpected because the economic downturn that has begun was predicted by economists, but it cannot be ruled out that the economy will be hit by another shock to which we, banks, will have to respond. The banking industry needs to get ready to respond to such shocks and help our customers and partners, above all businesses, to grow in these difficult conditions. I think this will be the biggest challenge for us this year.
In recent months, the economy has been predominantly impacted by the outbreak of war in Ukraine. Let’s look ahead and see what role banks will play in the participation of Polish businesses in the reconstruction of Ukraine.
Our economic growth model is very much based on banks and debt financing. I don’t think this is going to change. Of course, capital is needed because companies must have access to equity, but strong growth is driven by banks with their debt financing. I think it will be the same in the case of Ukraine, but we have to wait until the war is over for real developments in rebuilding Ukraine, which will also benefit Poland. Unfortunately, we do not know when this will happen; the conflict may turn into a protracted war and Ukraine will have to be continuously supported. According to some estimates, Ukraine’s GDP shrank by a third last year but its economy is functioning and needs constant support. The big recovery will come when hostilities cease. It will cost hundreds of billions and I think it will be an opportunity for the Polish economy and Polish companies because of our location and potential. The reconstruction process will overlap with Ukraine’s efforts to join the European Union. In this case, Poland’s role will be important, not only economically but also politically.
This will create a good climate for the Polish economy and Polish companies to benefit from the reconstruction. Let me quote the report drafted by Bank Pekao experts, where we estimate that Polish GDP may increase by almost PLN 190 billion, i.e. 3.8 percent due to support for the reconstruction of Ukraine. This shows that our economy may in fact benefit greatly from the reconstruction of Ukraine, in particular industries such as oil refining, energy and gas. As banks, we see that our customers, partners and businesses are very interested in participating in the process.
An issue that has become even more important in the context of the ongoing war in Ukraine is the energy transition. Will the war significantly accelerate it?
Just as the last two years have seen a very strong acceleration of the digital transition, the current conditions, primarily the war in Ukraine but also the energy crisis, will, in my opinion, significantly step up the energy transition. We can see this in Poland. On the one hand, we are moving away from Russian energy resources, ranging from coal to oil and gas, while on the other hand diversifying our energy sources. We want to have more renewable energy from wind and solar, which not only triggers transition to a more environmentally-friendly energy mix, but above all ensures greater diversification of energy sources and greater security because we can produce such energy ourselves rather than importing it. These processes have accelerated significantly. We can see it, for example, in last year’s data, when Poland was third in Europe after Germany and Spain in terms of the size of new photovoltaic systems. Remember that we are only just beginning the massive process of building offshore wind farms, one of the largest projects of its kind not only in Europe but in the world. All this will be of great importance for the economy, above all in terms of our energy security.
According to Bank Pekao’s forecast, GDP growth in 2023 will be 0.4 percent, which is a hair’s breadth from recession. What are your predictions for economic growth?
Poland’s experience of the last three years shows that the forecasts were quite pessimistic, although still better than the European or regional average, while the end result was more positive. I must say that I am an optimist. I think that GDP growth will be better than the forecast. In fact, the current forecasts by our bank’s experts for this year expect no less than 0.4 percent. This represents a slowdown but we will remain in positive territory. The expectation is that many economies in the European Union will be in the red. If you look at GDP forecasts published over the last year, not only banks but also international institutions, such as the World Bank and the European Commission, have gradually downgraded their forecasts for Poland. However, I believe that those forecasts will be steadily upgraded over the course of this year and our recovery from the economic slowdown will be faster. The recession will turn out to be relatively shallow and the rebound will come sooner.
We don’t know exactly when inflation will peak. Many economists say the peak will come in February but it may well be behind us. The recent inflation readings in early January came as a positive surprise. I think that positive developments will definitely start in the coming months, with a strong improvement in the second half of the year. It is hard to predict the interest rates, which will be crucial for the banking industry and the economy. However, a fall in inflation will certainly prompt the Monetary Policy Council to cut rates. This will act as a countercyclical factor preventing economic slowdown.
Poland has so far been immune to global economic crises. What about now?
I believe that the fundamentals of our economy are strong as measured against the backdrop of what is happening, mainly in Europe, as demonstrated in 2020 and 2021. Poland’s economy is benefiting from changes in the global economy with shorter supply chains. Manufacturing is moving closer, also to Poland and our region, as we have seen in the last two years when industrial production in Poland increased by about a fifth. We also see this in the labour market, which still looks very robust. Demand for labour will remain very high despite the economic slowdown. I think the fundamentals are good, much better than in many other economies. This is also driven by macroeconomic factors, such as public debt. Poland’s debt is really small, half of the EU average. By comparison, it exceeds 170 percent of GDP in Greece and 150 percent in Italy. Poland’s public deficit is also relatively low compared to other countries, and budget execution is better than anticipated year after year.
According to forecasts, 2023 could be marked by a recession in Germany. How will this affect Poland?
Poland is very strongly dependent on Germany, this much is clear. On the one hand, we are now an open economy, as evidenced by the share of exports in GDP, which is similar to that of Germany. This also attests to the high competitiveness of our economy on international markets. On the other hand, almost 30 percent of our trade is with Germany. Germany is a very strong economy, currently the world’s fourth largest, the largest in the European Union, and strongly anchored in industry. Poland’s economy is based on a similar model. I think it is industry that will be the key strength in dealing with the economic downturn. The strong industrial base of both the Polish and German economy and their interconnectedness will be a positive factor to cope better with the crisis.
We have talked about how the Polish economy compares to Europe’s. How does the Polish banking industry compare?
The Polish banking industry is very safe and stable. Our banks perform very well in stress tests of European banks. In the most recent stress test, Bank Pekao S.A. came in second among participating European Union banks, and PKO Bank Polski ranked third. Our banks have very strong capitalisation and we can assure individual and corporate customers that the Polish banking sector is safe.
Interviewed by Dominika Pietrzyk
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