Tuesday, October 6, 2009

Why Poland Was The Only OECD Country to Escape Recession


BNN had a discussion on Friday about why Poland escaped recession. In some ways, it is similar to Brazil, but it is a different situation, and very different demographics.

Retail figures were +5.7% in July.

Wikipedia says: "Poland is considered to currently have one of the fastest growing economies in Central European nations, with an annual growth rate of over 6.0% before the late-2000s recession.[2] Poland's GDP grew by 5% in 2008.[3] Poland has steadfastly pursued a policy of economic liberalization throughout the 1990s, with positive results for economic growth but negative results for some sectors of the population. The privatization of small and medium state-owned companies and a liberal law on establishing new firms has encouraged the development of the private business sector, which has been the main drive for Poland's economic growth".

Back to the reasons that it avoided a recession:

Poland has a large domestic economy, this helped it be sheltered. Sales that were destined for export could be redirected internally to its own market.

There was no borrowing like in other countries, there were no excesses in this regard. There was little to repay.

Many Poles were working overseas, and they were sending money back home. The Polish currency is low, so this helped with this repatriation of funds, and what the funds could but locally. Also, Poles are coming back home, from plumbers, to builders, to I.T professionals, presumably bringing further savings with them. There was a net outflow of poles from the U.K. in July.

The public budget deficit was lower, the country had a sensible monetary policy. Inflation was kept under control; there was fiscal discipline.

The current deficit is 6.6% of GDP, which is a concern. It is currently too large for Poland to adopt the Euro, which is a problem. However, it si also a blessing as it is not pegged into a corner like neighboring countries with respect to currency and monetary policy. Ultimately, Poland will have to adopt the Euro though and will have to bring its deficit back down to 3% of GDP (humm, I wonder if Spain and Brittain have those figures!?).

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