Monday, 8 July 2013

An Impending Recession?

The LSE European Politics and Policy Blog has published an abridged version of my article 'A Green Island Sinking in a Sea of Red'.

In comparison to the rest of Europe, Poland has experienced stand-out economic performance since the beginning of the economic crisis in 2008. However, Gavin Rae warns that this performance is largely based on the Polish government’s ability to leverage funding from the EU. With a declining EU budget that now focuses on innovation over infrastructure, as well as increased budgetary pressures, Poland may now face the real possibility of recession. 
Although the global economic crisis severely affected Central-Eastern Europe, Poland is the only EU member state not to have undergone a recession in recent years. Poland’s GDP rose on average by 3.5 per cent between 2008 and 2012, down from 5.5 per cent in the years after joining the EU. Now, declining investment in infrastructure from the EU may mean such growth rates will be a thing of the past.

Poland was able to avoid an economic recession due to a unique combination of internal and external factors. Firstly, the country suffered no significant collapse in its banking and financial sectors. Personal debt in Poland remained low and the banking sector relatively well regulated. Secondly, Poland was not as dependent on the inflow of private credit and capital as some other small economies in the region, nor so heavily reliant upon exports. Thirdly, Poland had not joined or tied its currency to the euro and therefore could retain some competitiveness through devaluation. Finally, throughout the crisis, the Polish government continued to increase spending, particularly by raising public investment through utilising the money gained from an inflow of EU structural and cohesion funds.

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