Polands economy was in a strange place during much of last year. Retail sales had fallen for the first time since the fall of Communism while growth, in the only European Union member state to avoid recession during the financial crisis, had slowed to 1.3% in 2013 from 1.9% the previous year and 4.5% in 2011.
Many wondered whether emerging Europes sovereign standard bearer, the only nation from the former soviet bloc with genuine near term aspirations of becoming a developed country, was losing its way. That feeling was reinforced by a government decision to transfer $51bn worth of underperforming privately run pension funds back under state control. Had Poland lost its affection for Western-style capital markets and if so, what did this mean for the wider region?
In the event, there was little need for concern. The elevation of Mateusz Szczurek, a 39 year old former ING economist, to the post of finance minister in November 2013 convinced global investors that Poland remains committed to reforms and deregulation. During his first year in office, he has overseen a quiet but impressive economic turnaround. In September, Standard & Poors tipped gross domestic product to grow by 3.1% this year and 3.3% in 2015, boosted by improving market conditions, low inflation and accommodative monetary policy.
Economists like his technocrat credentials. William Jackson, emerging market economist at Capital Economics in London, describes him as a safe pair of hands. Charles Robertson, global chief economist at Renaissance Capital, points to the countrys impressive economic outperformance since Szczureks elevation. Confidence is back, no one doubts Polands financial mix and the economy is looking pretty good, he says. Looking ahead over the next 12 months, I have concerns about many leading countries across emerging Europe, including Russia, but none about Poland. Hes done a good solid job.
And along with his steadiness, investors respect his credibility and chutzpah. The decision to nationalise the countrys pension fund system predated his arrival. Nor was he ensnared by a taping scandal that tainted the reputation of several Polish ministers including Szczureks predecessor, Jacek Rostowski. In September, incoming premier Ewa Kopacz retained his services, singling out the finance minister, a responsible economist, for particular praise.
Szczurek has even waded into the austerity debate, urging European leaders to spend more in order to boost growth. Only by agreeing to 700bn ($888bn) in fresh spending, the minister warned in September, could the region that was strangling itself unnecessarily, reverse its paralysing economic decline.
Mateusz Szczurek thinks long and hard before unrolling a long list of reasons underpinning Polands ability to recover from a recent bout of the economic shivers. Growth in emerging Europes financial and fiscal powerhouse dipped alarmingly over the past two full years, with retail sales and bank lending also slipping, before springing back to life in 2014.
The key [to the turnaround] was a combination of a supply-side reform drive with public investments responding to the shortage of private demand, Polands finance minister tells Emerging Markets. Other reasons for the nations renewed strength include its exchange rate flexibility, which has allowed for quick relative price and wage adjustment, along with prudent financial regulation and low levels of private and public debt.
Each of these points is crucial, insists Szczurek, to understanding why Polands economy remains head and shoulders above its regional peers. His words also betray the mind and moods of the private sector, where he worked for 16 years before being tapped last November to oversee Polands finances.
Szczurek highlights the importance of balancing books and slashing costs. A stabilising expenditure rule to be introduced in the 2015 budget will, he says, cut the countrys medium term structural deficit to below 1%. The new rule will also aim to lower levels of gross government debt, currently running at around 57% of GDP. Other measures designed to impact favourably on the fiscal balance include the streamlining [of] administration costs in order to improve tax compliance and a gradual but systematic rise in the retirement age.
The minister is at pains to underline the countrys enduring commitment to reform, deregulation and the health of its capital markets. Despite Polands move in early 2014 to effectively nationalise its pension fund system a decision that predated his arrival the minister insists that the core of the pension reform launched in 1999 [remains] intact as a defined contribution system.
Szczurek admits that challenges remain, including low inflation and wages at home and rising interest rates in the United States. Polands consumer price inflation is near zero, below the central banks official target of 2.5%, though the minister tips deflation, caused mainly by decreasing food and energy prices, to last only a few months.
By far the biggest drag, though, is the torrid level of growth across Europe. Eurozone stagnation is by far the greatest challenge for Poland, he says. Our firms are ready to benefit from any uptick of external demand thanks to wage discipline and productivity growth. But we do need European growth to have a lasting acceleration on our own growth levels.