Karlstad University
Short paper, Poland
05 January 2024
Poland’s Economic Evolution
A Comprehensive Analysis of Growth, Reforms, and Challenges
Over the Last Two Decades
MPC of Poland
22 405 keystrokes
Jesper Huric Larsen
Abstract and keywords
This short paper provides an analysis of Poland's economy from 2002 to 2022, focusing on
aspects such as gross domestic product, economic growth, inflation and unemployment rate.
The study explores economic progress, considering major events such as the 2008 financial
crisis, COVID-19 and the war in Ukraine. This reveals Poland's remarkable resilience,
emphasizing its strategic adjustments, a diversified economy and fiscal measures during
crises. By employing different multipliers and indicators the analysis shows how GDP is
influenced by different fiscal policies, used to direct the economy in a certain direction. This
explains the effects of fiscal policies, mainly focusing on the deeper understanding of the
factors influencing Poland's economic development and ability to tackle global challenges.
Keywords: Fiscal policies, inflation, unemployment rate, GDP growth, expenditure multiplier.
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List of Contents
1. Introduction ....................................................................................................................................... 4
2. Methodology....................................................................................................................................... 4
3. Theory ................................................................................................................................................ 5
3.1 Economic Growth and GDP ....................................................................................................... 5
3.2 Inflation....................................................................................................................................... 6
3.3 Unemployment rate..................................................................................................................... 8
3.4 Multipliers................................................................................................................................... 9
4. Results and Discussion .................................................................................................................... 11
5. Summary and Conclusion............................................................................................................... 13
6. References ........................................................................................................................................ 14
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1. Introduction
The purpose of this paper is to study different aspects of the economy of Poland, and
understand how they are connected to one another. This is also done in order for the
participants to achieve a thorough understanding of the economy. The paper is limited to
comparing the years 2002 until 2022 and possible economy-affecting events during this
period. In this short paper, Poland's progression of the economy is going to be described and
analyzed. In order to achieve a total overview of the Polish economy this short paper will
contain expenditure and tax multiplier. The multipliers are then going to be used to explain
the fiscal policies’ effects on the economy.
In the late 1980s, the Polish government was trying to stabilize the exchange rate policy to
counteract the price volatility of the currency. This stimulated the idea of attaching the Zloty
to the US dollar and the US dollar began serving as Poland's unofficial currency. The
government was allowed to attach the exchange rate due to the international financing. The
attachment to the US dollar worked as a nominal weight to hold the price stabilization
(Åslund, 2013). In the beginning of our period, the relevant economic areas studied were
relatively stable as well, which may be an effect of the Zloty being attached to the US dollar.
2. Methodology
Several steps were used in order to analyze the Polish economy and conduct a thorough
investigation of the aspects included. To obtain appropriate data for our multipliers and
indicators regarding economic growth, GDP, inflation and unemployment, reliable sources
have been used such as Eurostat and OECD.
To visualize the data, individual graphs were compiled regarding these subjects.
After analyzing the data, relevant and reputable sources were found, such as scientific
articles, to explain why the statistics shown in the graphs behave as they do.
The expenditure and tax multiplier are calculated by using relevant formulas. All the formulas
are calculated based on available data found on Eurostat and OECD.
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3. Theory
There are a few key aspects regarding Poland's economy such as GDP, economic growth rate,
inflation, unemployment rate, and relevant subjects within these factors.
3.1 Economic Growth and GDP
In the past two decades Poland's GDP has had a relatively stable growth rate, with an average
of 3,7% per year during the past two decades. According to statistics from OECD (2023) the
largest notable exception of the positive growth trend occurred in 2019-2020, due to the
COVID-19 outbreak. Poland experienced a significant downturn, and witnessed a record
decrease in GDP of -31,9% (Statista 2020). Accompanied with an increase in public debt,
reaching 53,5% of the GDP. Poland recovered strongly from the pandemic showing positive
GDP numbers the following years, even though the public debt continues to stay high, 49,1%
of GDP in 2022 (Statista, 2022).
A sample from 2014 shows that import and export is dominated by foreign firms, these firms
collectively contributed to 34% of the economic activity and was an important factor to
Poland's stable growth rate. In 2015 Poland showed numbers of 9,9% return of investment to
foreign investors, which makes the Polish market attractive for investors and as a result
contributes to the country's economy (OECD, 2017).
Figure 1. Economic growth between 2002-2022 (OECD 2023)
In recent years, the Russian invasion of Ukraine in 2022 has had a significant impact on the
economy. Poland showed generosity by welcoming over one million refugees from Ukraine,
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providing a lot of humanitarian efforts and burdened the national budget. Consequently, this
led to a decrease in GDP of -8,2% in 2022 (OECD, 2023).
The financial crisis of 2008 put many European countries to the test. Poland showed
remarkable resilience compared to many other countries and had a solid recovery in the
coming years (OECD, 2012). The main reasons why the impact of the financial crisis is
scarcely noticeable on the GDP includes primarily the stable banking sector and economic
diversification, along with the access to EU’s support funds that played an important role.
This led to a slowdown in economic growth but avoidance of a recession.
The resilience to external crises has been an important part for Poland's stable and positive
growth rate, managing to focus on innovation while other more vulnerable countries had to
focus on survival (OECD, 2016).
The living standard, which is measured by the wealth and quality of life of individuals, has
increased in Poland along with its GDP, and was up to 80% of the OECD average in 2020.
Stable macroeconomics along with advancements in labor productivity is the core factor
behind this, but the whole economy has benefited from several factors such as domestic
investment and increased focus on advanced and valuable economic activities.
3.2 Inflation
According to OECD statistics (2023) the aggregate inflation rate in Poland sustained a
promising average between 2002-2011, as illustrated in figure 2, and avoided a devastating
recession during the financial crisis in 2008. Although, their debt increased considerably
which has led to an increase in national value tax consolidation of public finances at the subnational levels, as well as efforts to reform the pension system in the years after the crisis
(Reichard, 2011, 39). Polish production power was progressively lowered towards the end of
2008, when investment in Polish business declined as a result of an unpredictable global
market (Reichard, 2011, 41). When the economy is unpredictable, it is difficult for foreign
investors to weigh out the positive and negative sides of trading. This means that companies
spend more money in reducing uncertainty of future price irregularities instead of production.
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Figure 2. (OECD, 2023)
Inflation Poland, annual growth rate in percent.
The Fisher effect establishes a relationship between inflation and capital investment in the
form of interest rate and real interest rate. Because of the inflation rate increase fluctuation,
the real interest rate has changed over the years. The lowest points registered in 2008, due to
the financial crisis repercussions mentioned above, and during the COVID-19 pandemic in
2019-2022.
Recession in the rest of Europe led to a decrease in demand for Polish products and reduced
export, which became an important factor of Poland's status in the global economy (Reichard,
2011, 41). A loss of foreign consumers lowered the household’s income thus reducing the
inflation rate.
As described, before the COVID-19 pandemic Poland had a record of low inflation but strong
economic growth. Mostly due to their integration into the international markets and
establishing a bigger outsourcing role for business services (OECD, 2020). This led to rising
household incomes which contributed to increasing inclusive economic development (OECD,
2020). A rise in household income increases inflation rate, due to enlargement of the
consumers purchasing power.
As illustrated in figure 2, Poland's inflation rate grew considerably by 2020 and onwards as
an effect of the COVID-19 outbreak and the measures taken in the economic policy because
of the pandemic. The established policies that had an effect on inflation were such as less
restrictive monetary or fiscal policy (Brukwicka & Dudzik, 2021, 119). In march 2020, the
government implemented a fiscal package financed by the state development bank, in order to
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support the local-government investment (Brukwicka & Dudzik, 2021). The introduction of
the fiscal policy meant increasing the household's purchasing power to dampen the
repercussions of the pandemic.
Other relevant measures taken were such as monetary repo operations, public subsidies,
loans, loan guarantees and capital injections to business, health care measures, individual
income support and confinement measures (OECD, 2020).
3.3 Unemployment rate
The unemployment rate is low in Poland at the time of this paper being written because of
several various reasons, according to OECD (2021) the unemployment rate in 2022 is 2,89%.
Over the 20 year period chosen in this short paper to analyze Poland's unemployment rate has
been between 20,50% in the start of 2002 down to 2,89% in 2022. To find out the rate of
unemployment, the number of unemployed people is divided by the total number of people in
the labor force and then multiplied by 100. For a long period of time, unemployment has been
declining in Poland.
The financial crisis in 2008 resulted in a decrease in the Polish labor market, especially in
markets reliant on external demand, such as manufacturing. The labor market started to
recover in 2010. From 2008-2019, the unemployment started to fall in Poland because of the
rise in employment rates, pushed by the economic growth, and a downturn in the labor force.
Another factor affecting the Polish unemployment rate is the inefficient labor laws, making it
more difficult for entrepreneurs to create jobs for society and protect senior employees. This
led to an increase in structural unemployment. (OECD, 2021).
On 1 of May 2004 Poland joined the European Union which increased emigration to other
European countries. Between the years 2002-2005 the estimated emigration was
approximately 100 000 from Poland. In 2006 the emigrants drastically increased to nearly 47
000 people. In this case this leads to less competition for jobs which in turn lower the
unemployment rate in Poland as a result of emigration according to Alscher, S (2008).
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According to the statistics provided by OECD, Poland held their unemployment stable during
COVID-19. But as a result of the pandemic, unemployment started to go up again due to
lower demand during the lockdown (OECD, 2021). Especially the SMEs that have been
damaged by the pandemic because they have a large presence in those sectors that were most
affected, such as restaurants. According to OECD (2021) the number of unemployed people
in Poland increased from 922 197 to 1 099 500 which led to 177 303 individuals losing their
job. During this period, the seasonally adjusted unemployment rate went from 5,2% up to
6,2% (OECD, 2021).
Figure 3. (OECD, 2023)
Unemployment rate in percent.
A reason for Poland's unemployment rate being one of the lowest in Europe is that Poland's
government had both anticrisis and financial shield initiatives, which led to entrepreneurs in
Poland receiving support from the government. Polish companies collected up to 212 billion
PLN in total (eurofound, 2020). Although Poland withstood the COVID-19 outbreak
relatively unscathed. Polish companies' demand for labor decreased and may have long term
impacts on the most vulnerable
3.4 Multipliers
To more accurately study Poland's economy, various value measures are used. In this paper,
different charts have been used to derive these different measures. The two main measures
adopted in this paper are the expenditure multiplier and the tax multiplier. The expenditure
multiplier is a concept illustrating how change in autonomous expenditure can lead to a larger
change in overall economic activity. The formula used is
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1
1−𝑀𝑀𝑀 (1−𝑀)+𝑀𝑀
.
Breaking down the formula, the marginal propensity to consume (MPC) is determined first,
calculated using
𝛥 𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀
𝑀 𝑀𝑀𝑀𝑀𝑀𝑀
.
By using a chart to determine the marginal propensity to consume between the years 20022022 for Poland, the answer comes to 0,5306. The “scatterplot” function is then used to insert
a trendline to determine the exact answer.
(Figure 4) Marginal propensity to consume,
figures used are nominal. (Eurostat, 2022)
𝛥 𝑀𝑀𝑀
The next factor in the formula is t, determined by the formula 𝑀𝑀𝑀𝑀𝑀𝑀𝑀 .
As indicated in the chart, the answer between 2002-2022 is 0,146.
Figure 5. Marginal tax rate, nominal (Eurostat, 2022).
The final factor in the formula is “im”, representing the marginal propensity to import. Is
𝛥𝑀𝑀𝑀𝑀𝑀𝑀
calculated as 𝑀𝑀𝑀𝑀𝑀𝑀𝑀 . As seen in the chart marginal propensity to import is 0.6627.
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(Figure 6)Marginal propensity to import,figures used are nominal, (Eurostat, 2022)
1
Using all these factors in the formula 1−0,5306 (1−0,146)+0,6627 = 0,94023173
The next value derived is the tax multiplier. The tax multiplier measures how gross domestic
product (GDP) is impacted by changes in taxation. The formula used to calculate the tax
𝑀𝑀𝑀
multiplier is − 1−𝑀𝑀𝑀. As previously shown in the chart, the marginal propensity to consume
0,5306
is 0,5306 for Poland between 2002-2022. This is then inserted into the formula − 1−0,5306 =
−1,13037921
4. Results and Discussion
Poland’s economy has grown immensely and substantial progress has been made over the
past two decades. The country has been seen sort of in the periphery of Europe in the past but
has made changes to try to change that image of itself, and done well. Poland’s growth is
based on entrepreneurship and hard work, not on natural resources or financial steroids. Since
Russia’s invasion of Ukraine, Poland’s growth has stalled somewhat due to the proximity of
the conflict.
Poland’s source of success is that they had a clear plan of what they wanted to achieve and
how they would get there. They wanted more integration in Europe and the EU and as a result
of that, adopted not only rules and social norms from the west, but also elements such as free
press and robust competition, independent monetary policy and stronger democracy.
These deep, structural reforms originally constructed in the 1990s have fast-tracked Poland
into an open, free economy. Billions of euros have been spent to improve the country’s
infrastructure along with both the human and productive capital. Poland’s economy has
become diversified over the last 20 years which means that the country could recover well
from the COVID-19 pandemic as well.
During COVID-19 Polish companies received up to 212 billion PLN (roughly 49 billion
EUR) which emphasizes that one of Poland's fiscal policies to fend off the pandemic was to
use government spending. Furthermore, this implies that the Polish government wanted to
increase spending in the country. Over the whole world there was a tangible uncertainty that
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in turn led to an increase in interest and it affected household consumption negatively. As a
result of this, Poland's government used fiscal policies to sustain economic activity.
The inflation rate had slowly been increasing between 2002-2014 despite economic struggles
in the worldwide economy. The policies to retain a stable inflation rate have been successful
during this period, but later experienced a large increase due to the aftermath of the pandemic.
From an unemployment point of view the Polish government's fiscal policies had good effects
as seen in the graph in the unemployment chapter. Companies kept on growing their
businesses and kept expanding their workforce.
Poland's expenditure multiplier of 0,94 is considered relatively low in international
comparison. The expenditure multiplier of 0,94 can be explained in several ways, influenced
by several variables. The different variables affecting it include an MPC of 0,53 meaning that
53% is used for consumption. In international comparison, this is relatively normal and if
anything, could be considered somewhat high and contributes to a low expenditure multiplier.
The next variable is “t” representing the marginal tax rate. For Poland that number is 0,146
between 2002-2022, which is considered low and contributes to a low expenditure multiplier.
The final factor affecting the expenditure multiplier is “im”, representing the marginal
propensity to import. Poland's marginal propensity to import between 2002-2022 is 0,6627,
which is considered quite high. This factor stands out the most and indicates that Poland
places significant importance on imports.
The next important variable to take a closer look at is Poland's tax multiplier, which between
2002-2022 was -1,13. This is considered relatively normal in an international comparison.
The tax multiplier illustrates the impact tax revenue has on the total economic activity. Since
Poland's tax multiplier is close to -1, it does not have a particularly significant effect. It does
not increase drastically but also does not decrease drastically. This suggests that using tax
revenues to regulate the country's economic activity would not be considered very effective.
5. Summary and Conclusion
The point of this short paper was to study the economy of Poland and see the effects caused
by macroeconomic events from 2002 to 2022. Inflation and GDP looked promising in the
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beginning of the period judging from the level of import, rate of inflation along with the
multipliers. In the beginning of the period reviewed, Polish unemployment was over 20%.
During the period it has successively decreased to one of Europe's best at under 3%.
The Polish government hasn't been able to affect their autonomous spending very much due
to their low expenditure multiplier. However, they have more influence with their tax
multiplier, since it is higher and closer to average. Both the tax and expenditure multiplier is
heavily affected by their reliance on, and high tendency to import.
Economic growth has been strong and stable throughout the whole period, with new policies
and adaptations contributing and playing an important role in the success of Poland. Years
plagued by recessions and pandemics in the world have had limited consequences on the
country’s economy.
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