Time flies. It might seem the rule of Law and Justice (PiS) is still the shocking new in Polish politics, yet 2019 will be the year of the first real test for the ruling party’s resilience.
With a general election only slated to take place in the autumn, it is much too early to predict the actual outcome of the vote but there is one certainty. This is going to be a year of increased political tension and possibly destabilisation.
PiS has near-complete control of the state’s institutions, which it overhauled, reversing the status quo of the previous years, sometimes decades. The ruling party will no doubt be tempted to use that control against the opposition to ensure a second term.
The opposition, meanwhile, might not even require that much effort from PiS because it remains in disarray, despite having claimed victory in municipal vote last October. The going narrative of working together in a united bloc has fizzled.
The main opposition party, the liberal Civic Platform (PO), has chosen the strategy of bulking up rather than opting for cooperation, which necessitates compromise. For example, PO has recently poached a number of MPs from its smaller sister party Modern (N), weakening the latter and deflating much enthusiasm there existed for a broader anti-PiS coalition.
On the left, there is no end in sight to the turmoil that guarantees anything but a place for leftist groups in the parliament. The rising star Robert Biedron has shunned cooperation with post-communist SLD and social democrats from Razem, and appears to bet on going it alone. What he plans – aside from launching a merchandise store to raise funds – remains unclear until Biedron’s first congress, due in February.
PiS standing for – or at least skilfully crafting its message so it appears that way – the poorer people who the liberal parties neglected and not infrequently demeaned, remains the ruling party’s key strength. It gives PiS voting numbers needed for pulling off a strong performance in the election while also keeping the left in check.
The ruling party’s popularity has never dropped below 30% since 2015 and has consistently hovered over 35% since July 2017, averaged polling results collected by website ewybory.pl shows.
In contrast, PO has not broken the 30% barrier since 2015 while all other parties have been lingering at below 10% in the past 18 months.
Unless there is a surprising revival of one of the established parties other than PO or Biedron proves a major disruptor – both scenarios appear unlikely – the scene is set for yet another battle between the two rights in Poland.
Any opposition’s sure bet on deriding the government is economy but even in that respect, PO and others are going to have a hard time convincing Poles they have an attractive offer for them.
Post election, in theory PiS, emboldened by winning a second straight term, could embark on building a soft type of authoritarianism currently seen in Hungary, putting Poland further at odds with the EU. That said, PiS’ biggest battle with Brussels – over the revamp of the Supreme Court – ended in the ruling party U-turning on what it had said earlier was a flagship reform.
Should the opposition win, it also remains hazy what changes introduced by PiS it will keep and what it will reverse.
Poland’s economy has not been this good for years, with growth set to reach around 5% in 2018, having shot to an unadjusted 5.1% (5.7% adjusted) in the third quarter despite analysts’ all predicting a slowdown. Unemployment is practically non-existent at over 5% with the tightened market driving up wages.
Most forecasts do predict a slowdown in 2019, but growth defying similar forecasts in late 2018 suggests at least some scepticism as to the accuracy of the predictions.
That said, given the current strength of the economy, even the previously moderate growth forecasts from some major institutions tend to be revised upward. The EBRD upped its growth forecast for 2019 0.3pp to 3.6% in November, for example.
Where not revised, predictions are still robust anyway. The European Commission forecasts GDP expansion of 3.7% in 2019. Fitch assumes growth of 3.6%, while the International Monetary Fund has it at 3.5%.
The government assumed GDP growth of 3.8% in 2019 in the draft budget bill tabled in September. Growth has been reliant on consumption and to an extent investment and that appears to remain the trend in 2019 as well, the government says, with independent forecasts largely agreeing.
Thanks to the increased tax revenues GDP growth is expected to generate next year – even if to slightly smaller extent – the finances of the Polish state are also set to remain in the comfort zone.
The budget deficit is predicted at 2% of GDP next year by the European Commission and Fitch alike, a result of slower growth coinciding with higher expenditure, the latter expected to get a boost because of the election year.
The Polish government is clearly much more optimistic about budget deficit, having pencilled in a gap of just 1.7% of GDP.
With the economy on a solid footing for 2019, businesses have little to worry about. Companies are expected to profit off the growing consumption power of Polish households while foreign investment – although having fallen in 2017 to the lowest level in four years – will have likely improved in 2018 and continue to do so in 2019.
Where are the risks, then? The chief one is politics but its potential impact extends beyond 2019 because of election taking place only in October.
Other, theoretically more immediate, risks include a more pronounced slowdown in economic growth in Germany, Poland’s biggest trade partner. Domestically, the yet unclear extent of power price hikes could hit companies, affecting their investment plans.
Not that investment is about to die. In what’s shaping up to be one of the flagship investments in 2019, Korean company LG Chem is set to expand its existing factory of batteries for electric cars, at a cost of PLN5.8bn (€1.35bn) LG Chem has also been reported to be mulling a completely new plant in Poland because, it said, demand is exceeding expectations.