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World > Europe > Poland > Economy (Notes)

Poland - Economy (Notes)


ECONOMY
The Polish economy grew rapidly in the mid-1990s, slowed considerably in 2001 and 2002, and returned again to healthy growth rates in 2003. Poland?s gross domestic product (GDP) grew at an annualized rate of 5.2% in the first quarter of 2006. Faster growth has begun to reduce persistently high unemployment, from nearly 20% in the middle of 2004 to 16.5% in May 2006. Tight monetary policy and dramatic productivity growth have helped to hold down inflation, which was 2.1% in 2005. Likewise, Poland's current account deficit, which grew rapidly in the late 1990s, has since moderated to 1.4% of GDP in 2005. The 2005 budget deficit was 27.5 billion zloty, or 2.8% of GDP in 2005, and the current government pledged to restrain the 2006 and 2007 budgets at 30 billion zloty.

Throughout the 1990s, the United States and other Western countries supported the growth of a free enterprise economy by reducing Poland's foreign debt burden, providing economic aid, and lowering trade barriers. Poland graduated from U.S Agency for International Development (USAID) assistance in 2000 and paid the balance of its U.S.-held Paris Club debt in 2005. Poland officially joined the European Union (EU) on May 1, 2004.

Agriculture
Agriculture employs 16.1% of the work force but contributes only 5% to the gross domestic product (GDP), reflecting relatively low productivity. Unlike the industrial sector, Poland's agricultural sector remained largely in private hands during the decades of communist rule. Most of the former state farms are now leased to farmer tenants. Lack of credit is hampering efforts to sell former state farmland. Currently, Poland's 2 million private farms occupy 90% of all farmland and account for roughly the same percentage of total agricultural production. These farms are small--8 hectares (ha) on average--and often fragmented. Farms with an area exceeding 15 ha accounted for only 9% of the total number of farms but cover 45% of total agricultural area. Over half of all farming households in Poland produce only for their own needs with little, if any, commercial sales.

Poland is a net exporter of confectionery, processed fruit and vegetables, meat, and dairy products. Processors often rely on imports to supplement domestic supplies of wheat, feed grains, vegetable oil, and protein meals, which are generally insufficient to meet domestic demand. However, Poland is the leading producer in Europe of potatoes and rye and is one of the world's largest producers of sugarbeets. Poland also is a significant producer of rapeseed, grains, hogs, and cattle. Attempts to increase domestic feed grain production are hampered by the short growing season, poor soil, and the small size of farms.

Pressure to restructure the agriculture sector intensified as Poland prepared to accede to the European Union, which is unwilling to subsidize the vast number of subsistence farms that do not produce for the market. The changes in agriculture are likely to strain Poland's social fabric, tearing at the heart of the traditional, family-based small farm as the younger generation drifts toward the cities. Nonetheless, dramatically increasing agricultural exports to the EU-15 (38% growth in 2005) and payments to farmers from Brussels following accession have enriched Polish commercial farmers and dramatically increase support for EU membership in Poland?s rural areas.

Industry
Before World War II, Poland's industrial base was concentrated in the coal, textile, chemical, machinery, iron, and steel sectors. Today it extends to fertilizers, petrochemicals, machine tools, electrical machinery, electronics, and shipbuilding.

Poland's industrial base suffered greatly during World War II, and many resources were directed toward reconstruction. The communist economic system imposed in the late 1940s created large and unwieldy economic structures operated under a tight central command. In part because of this systemic rigidity, the economy performed poorly even in comparison with other economies in central Europe.

In 1990, the Mazowiecki government began a comprehensive reform program to replace the centralized command economy with a market-oriented system. While the results overall have been impressive, many large state-owned industrial enterprises, particularly the railroad and the mining, steel, and defense sectors, have remained resistant to the change and downsizing required to survive in an open market economy.

Economic Reform Program and Direct Foreign Investment
The economic reforms introduced in 1990 removed price controls, eliminated most subsidies to industry, opened markets to international competition, and imposed strict budgetary and monetary discipline. Poland was the first former centrally planned economy in central Europe to end its recession and return to growth in the early 1990s. The private sector now accounts for over two-thirds of GDP.

In early 2002, the government announced a new set of economic reforms known as the Hausner Plan, designed in many ways to complete the process launched in 1990. The package acknowledged the need to improve Poland's investment climate, particularly the conditions for small and medium-sized enterprises, and better prepare the economy to compete as a European Union (EU) member. The government also aimed to improve Poland's public finances to prepare for eventual adoption of the euro. Though the government was able to enact only portions of the Hausner Plan, those successes coupled with successful monetary efforts to strengthen the zloty, have put Poland within reach of the National Bank?s goal of Euro accession in 2008-2009.

As a result of Poland's growth and investment-friendly climate, the country has received over $85 billion in direct foreign investment (DFI) since 1990, with roughly $7 billion in 2004 alone. According to a recently publish report by Ernst and Young, Poland is tied with Germany as the most attractive destination for foreign investment in Europe. The availability of cheap land and a large, relatively skilled labor force are among Polish strengths. However, the government continues to play a strong role in the economy, as seen in excessive red tape and the high level of politicization in many business decisions. Investors complain that state regulation is not transparent or predictable, and the economy suffers from a lack of competition in many sectors, notably telecommunications.

Foreign Trade
With the collapse of the ruble-based COMECON trading bloc in 1990, Poland scrambled to reorient its trade. As early as 1996, 70% of its trade was with EU-15 members, and neighboring Germany today is Poland's dominant trading partner. Most of Poland's imports are capital goods needed for industrial retooling and for manufacturing inputs, rather than imports for consumption. Therefore, a deficit is expected and should even be regarded as positive at this point. Poland, a member of the World Trade Organization (WTO) and European Union, applies the EU?s common external tariff to goods from other countries--including the U.S.

In the year after it joined the EU, Poland experienced an overall growth in exports of 30%. This growth was not confined to trade among EU partners: while exports to EU countries rose by 27%, exports to developing countries rose by 46%, and exports to Russia rose an unexpected 77%. Poland?s trade balance continued to improve, with export growth significantly outpacing import growth. Opportunities for trade and investment continue to exist across virtually all sectors. The American Chamber of Commerce in Poland, founded in 1991 with seven members, now has more than 300 members. Strong economic growth potential, a large domestic market, EU membership, and political stability are the top reasons U.S. and other foreign companies do business in Poland.


Facts at a Glance: Geography - People - Government - Economy - Communications - Transportation - Military - Climate - Current Time - Ranking Positions - Polish Zloty Exchange Rates
Notes and Commentary: People - Economy - Government and Political Conditions - Historical Highlights - Foreign Relations - Relations with U.S.



Facts at a Glance
Geography
People
Government
Economy
Communications
Transportation
Military
Climate
Current Time
Ranking Positions
Polish Zloty Exchange Rates


Notes and Commentary
People
Economy
Government and Political Conditions
Historical Highlights
Foreign Relations
Relations with U.S.





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