Poland shines in European Commission economic outlook

Poland shines in European Commission economic outlook
By Henry Kirby November 18, 2015
Central and Eastern Europe (CEE) is set to outperform much of the EU in growth terms over the next two years, according to a report published earlier this month by the European Commission. 
 
The Commission’s “European Economic Forecast 2015” did not provide figures for CEE as a whole, but the average 2015 and 2016 GDP growth forecasts of the nations that make up the region both sat at 2.6%. These figures are comfortably higher than the Eurozone’s 2015 and 2016 forecasts of 1.6% and 1.8%, respectively, and the overall EU 2015 and 2016 figures of 1.9% and 2%, respectively.
 
The report attributed the higher growth of CEE to “renewed catching up” and to Poland’s “strong growth”. Indeed, Poland’s 3.5% growth forecasts for 2015, 2016 and 2017 are some of the highest in the EU. Only Ireland at 6.0%, and the Czech Republic at 4.3%, are expected to achieve higher growth this year, according to the report.
 
 
Non-euro members of the EU – CEE makes up all but three of these countries – were said to be less affected by legacies of the 2008 financial crisis, “such as unemployment and deleveraging pressures”.
 
2015 saw the majority of nations covered by the report receive an upward revision compared with the EC’s Spring forecast, while all but nine of these economies had their 2016 GDP forecasts either revised downward or left unchanged in the Autumn report. While a more optimistic outlook on 2015 doubled with a negative revision to 2016 growth would suggest a level of sharp year-on-year decline, the revised figures still represent a mostly positive growth story across the EU.
 
The report described the euro area as heading for a “continued, moderate recovery”, which the bne:Chart below illustrates, with much of the euro area shaded in the lighter green colour which represents roughly 1% to 2% annual GDP growth.
 
 
 
Poles apart
 
Poland’s consistently positive outlook of 3.5% growth every year until 2017 sets it apart from the majority of more developed economies in Western Europe – many of which are expected to barely broach the 1% growth mark over the next couple of years. Poland’s was one of the most optimistic country reports in the study, with the EC predicting “solid and stable growth” throughout 2015, 2016 and 2017.
 
Despite Russia and Ukraine being the destination for over 10% of Poland’s 2013 exports, the report cited “robust export growth to other EU countries” as “more than compensat[ing] for negative developments” in Moscow and Kyiv.
 
The report also predicts the net export contribution to GDP will actually be marginally negative throughout 2016 and 2017, despite a healthy growth forecast for both years. This would suggest that a boost in domestic consumption will play a substantial role in the country’s near-term growth.
 
One key development that was not factored into Poland’s forecast is the October 25 general election which saw the more populist Law and Justice take over from the moderate Civic Platform. The report conceded that “uncertainty is also attached to economic policy initiatives that may be implemented” following the result.
 
 
Lithuania squeezed by sanctions
 
Lithuania suffered the second-largest downward revision for 2015 GDP growth in the Autumn report, with its forecast falling 1.1pp to 1.7%. The downward revision was mostly a result of a huge fall in exports to Russia, which is embargoing many EU goods in response to EU- and US-led sanctions. But the impact will subside towards the end of the year as Russia slowly lifts restrictions, the report said.
 
Russia’s year-to-date share of Lithuania’s exports stood at 13.3% in September, an annual fall of 41.4%. According to an IntelliNews Pro report, Lithuanian exporters are gradually building a position in other markets as they put in effort to redirect sales of goods and services. However, the EC report’s Autumn revision suggests that this may be a case of too little too late for their 2015 growth.
 
Despite a downward revision of 0.4pp to its 2016 growth forecast, the EC report predicted healthy growth of 2.9% in 2016 for Lithuania, with that figure rising to 3.4% for 2017.
 

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