CEE Summit: market positive, but ‘hidden Polexit’ is a risk

Poland is the most promising market in the region but stagflation will become an issue, Professor Witold Orlowski, rector of the Vistula University in Warsaw and chief economic advisor, Poland, told the CEE Summit, which was organised by Real Asset Media and Poland Today.

“The war in Ukraine will have a negative impact on the Polish economy, even if it is too early to know how bad the effects will be,” he said. “GDP growth will be less than expected, inflationary pressures will build and in the medium term there will be stagflation.”

The inflation rate could reach 15% by the autumn because of the increase in gas and food prices, both as a direct result of the war.

On the energy front, Poland is doing well, Orlowski said: “It is close to being independent from Russian supplies. However, everything depends on Russian gas. I would expect GDP growth at 2% if the gas supply is only cut off to Poland and Bulgaria. But if Russia cuts off Germany, this would cause a recession in the whole of Europe.”

Labour shortages which Poland was already experiencing before the invasion of Ukraine are getting worse, because many Ukrainian men who were working in Poland have gone back to their country to fight, he said: “There will be continuing labour shortage problems for some time.”

On the positive side, the shortening of supply chains could be an advantage for Poland. “Poland might benefit if we offer good conditions for labour intensive production, but Germany won’t be forced to build factories in Poland just because of the Ukrainian war,” Orlowski said.

“But looking ahead, there will be a lot to reconstruct in Ukraine after the war and the West will provide a lot of money to rebuild the country’s buildings and infrastructure,” he said, and Poland could play a crucial role.

“Poland is the most promising market in the region and the country in CEE that attracts the most Chinese investment, but the problem is politics and not just economics,” he said.

Over 90% of Polish people are in favour of EU membership, so the prospect of Poland leaving the Union doesn’t seem very likely, said Orlowski, who was instrumental in negotiating Poland’s entry into the EU.

However, “there is the risk of a hidden Polexit, with the country distancing itself, not participating in decision making and losing influence, remaining formally a member but on the outer tier.”

If countries like Poland and Hungary take more of a back seat, the EU could be tempted to make the Eurozone the real hub of Europe, the inner hub of decision-making and real influence. This, said Orlowski, means Poland would end up “being a second-class member by its own choice”.