The last good year for the Polish economy

If you claim PiS has a macroeconomic agenda for Poland, I am afraid you would find it hard to convince me. The economic agenda of the ruling party rests on social allowances, this one pillar is fairly sufficient to prop it up and buy off several voters who, for the first time since 1989 have been given tangible cash into their hands.

The previous governments were pursuing systemic reforms, while this government neglects important spheres which require attention and investments, such as education, health service, efficient public administration. This is all done at the expense of money spent on social transfers. A new system of roads, modern trains, an improved schooling system prove not to improve the comfort of living as good as five hundred zlotys held in a palm.

Allowances generously given out by PiS are not correlated with what products or services put out in an economy nor anyhow linked to productivity. With the same amount of goods and services delivered, incomes of individuals rise. This in the short run spurs consumption and propels economic growth, but in the long run, as any student of economics should know, would spark off inflation, the phenomenon has already begun to materialise and apply most to basic products, such as fruits and vegetables, as well as to services.

The continuous price growth is consistently ignored by the central bank, whose officials obstinately point at its temporary nature, while in fact the inflation has not been caused by external shocks, but is driven predominantly by rising wages which are the component of a price of nearly any product or service. The central bank, by keeping its benchmark rate over one percentage point below (official) inflation rate not only facilitates transfer of wealth from savers to borrowers (including the biggest debtor, i.e. the government), but also fails to fulfil its statutory task which is ensuring price stability.

Savings of those have put some money aside are eaten up by inflation or actually the savers lose in real terms. When such situations occur, cash holders flee their cash and attempt to invest in assets which can potentially protect their savings from inflation. The biggest victims are first homebuyers priced out of the market, since the property market is the mostly afflicted by cash fleeing.

The cost pressures are hitting results of enterprises which have to raise wages (this pertains mostly to manufacturers), bear higher costs of energy (to be unfrozen in 2020) and transport. As an analyst covering corporate clients I have access to portfolio statistics which clearly show 2017 was the best year for corporates in Poland, then profitability of businesses dwindled in 2018, first half of 2019 have brought a further decline and number of distressed companies is further rising. With quick growth of minimum wages and increase in social security contributions the trend is unlikely to reverse.

Fellow bankers and I in unison are confident the Polish economy is anywhere but in the balance. It is overheated. I blame the Polish government, precisely their pursuit of policies of adding fuel to the fire and the central bank for not raising the interest rates when it should have been done, i.e. in 2017 for the overheating.

Regardless of my gripes, PiS is bound to win the election due in two weeks. As I once pointed out, it ought to win to pay the price for its reckless policy, but we have to mobilise ourselves to minimise the scale of their victory, at best not to let them win simple majority. Keep the faith!