eco TV

Outperforming Poland

3/10/2020

Growth remained sustained in Central European countries in 2019. A striking feature is the good resilience of polish exports. What lies behind this?

TRANSCRIPT // Outperforming Poland : March 2020

THE CHART OF THE MONTH

François Doux:

We hear a lot about slowing global growth, but some countries are bucking the trend. This is particularly true of Central Europe.

François Faure, hello.

François Faure:

Hello.

François Doux:

In today’s Chart of the Month we will be looking mainly at four countries: Poland, Hungary, the Czech Republic and Slovakia. Growth slowed slightly, to 3.8% across these four countries in 2019. But the growth differential with the eurozone remains in place. There is a 2.6% gap. Where is this economic outperformance by these four countries coming from?

François Faure:

The growth differential comes mainly from domestic demand. And in particular from consumer spending. These economies are currently experiencing a very stretched labour market, with historically low unemployment, which is pushing up wages. So even though inflation is rising, the purchasing power gains are very significant. In addition, with interest rates still pretty low, consumer credit is boosting consumer spending.

François Doux:

What is interesting to see is the export performance of these four countries. It’s not the same picture for all of them.

François Faure:

Yes. On the one side we have the Czech Republic and Slovakia, which are suffering from the combined effect of significant dependence on Germany, a major trading partner, and their exposure to the automotive market.

François Doux:

And the chart also shows that Poland is outperforming strongly in terms of exports. Why ?

François Faure:

There are three reasons for this. The first is that Poland, compared to the other countries, remains the major exporter of agricultural products and livestock. These make up 13% of Polish exports. This share is more than double that of the other countries.

François Doux:

So Poland’s neighbours, its trading partners, continue to import agricultural commodities. What is the second reason for the outperformance?

François Faure:

The second reason is that Hungary, the Czech Republic and Slovakia are amongst the countries with the highest level of integration in global value chains according to the OECD rankings. Poland is a long way behind on this measure. As a result, the negative multiplier effects from the slowdown in Germany are felt less in Poland than in these other countries.

François Doux:

And the third and last reason.

François Faure:

The final reason is the trend in unit labour costs. Although wages have risen in Poland, they have increased a little less than in the other countries. This means that Poland has managed to control labour unit costs thanks to productivity, and it has done this better than the other countries.

François Doux:

Can we conclude that to some extent Poland will escape the widespread slowdown in growth in 2020?

François Faure:

What we can say is that Poland will suffer less from a slowdown in exports, even though, as for the other countries, we expect growth to slow.

François Doux:

Thank you François Faure for this update on growth in Central European countries.

Coming up, Three Questions on the French labour market with Hélène Baudchon.

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