Poland: European Success Story but Challenges Ahead

• Author: Camilla Andersen
• Position: IMF Survey online

Poland stands out as the only economy in the 27-member European Union to have escaped a recession in 2009. Following the onset of the crisis, exports dropped and economic growth slowed, reflecting deep recessions in Poland’s main trading partners. There was also a sharp slowdown in credit growth as banks tightened their lending criteria. But Poland’s limited reliance on exports, flexible exchange rate, and sound economic policies helped cushion the blow of the crisis. Today, the country remains well positioned for a return to healthy growth.

Thomsen, the IMF’s mission chief for Poland, looks at the country’s prospects, as the world economy continues its recovery from the global financial crisis. He also discusses the unique set of circumstances that protected Poland’s economy during the crisis, including the government’s decision to access the IMF’s new loan instrument for strongly performing economies, the Flexible Credit Line (FCL).

IMF Survey online: As the only member of the European Union to avert outright recession during the global economic crisis, is Poland’s economy likely to rebound more quickly than its peers in central and eastern Europe?

Thomsen: Poland is likely to continue to perform better than most countries in the European Union and better than most of its peers in central and eastern Europe. The global economic environment is improving, and the balance sheet adjustment that happened in response to the crisis appears to have run its course. We also believe that there is new risk appetite among banks, which suggests that credit will start to slowly expand. Another boost to growth will come from the expected near tripling of EU funds to Poland in the next few years.

Against this background, we expect a continued recovery in domestic demand. As a result, we see GDP growth accelerating from 2¾ percent in 2010 to more than 3 percent in 2011.

IMF Survey online: With presidential and parliamentary elections coming up in 2010 and 2011, what are the main challenges for the government?

Thomsen: The main challenge is to begin withdrawing the large fiscal stimulus in order to gradually reduce the fiscal deficit.

Poland added significant fiscal stimulus during the crisis. Indeed, this was one of the major reasons why Poland did not fall into recession during the crisis. The government enacted a discretionary fiscal relaxation of 4½ percent of GDP and allowed the automatic stabilizers to work. As a result, the fiscal deficit rose from...