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Challenges of the Polish economy

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The Polish economy has been growing ever so steadily in the past decades, surpassing all states in the Central European region, as well as many other states within the EU. It may however face new challenges in a quickly transforming world economy. How should the county prepare for the next decade to come?

Poland in need of a new economic model

Monika Walczak | 2018. July 18. 22:00

Poland needs a new development model that will correspond to current trends in the global economy.

Poland is undoubtedly a country of success. Since the transformation period, in particular after accession to the European Union (EU) in 2004, Poland has gained momentum, which was reflected in the rapid growth of Gross Domestic Product (GDP) and trade. Such progress was possible thanks to the quick integration within the EU, inflow of foreign investment and effective competition through low labor costs. However, this development model, which has been effective so far, now requires modifications. The new model must take into account both the current Fourth Industrial Revolution, based on the automation of manufacturing processes and the declining position of the EU on the international area.

*The transformation of the economy towards the production of high added value products and services

The weakness of the Polish economy is that it is low on innovation. The export production in Poland is focused on medium and low technology products, while the share of high technology goods does not exceed 9% of total exports. Poland, in contrast to Western countries, has no national champions, i.e., widely recognized brands. Poland is considered a supplier of cheap accessories and semi-finished products or is seen as a place where assembly facilities are located. Considering that in the long-term the ability of Polish goods to compete on foreign markets will depend on their technological level, the transition from competing with low labor costs to competing with innovation, quality and unique specialization is absolutely necessary. The effective use of the potential creativity and entrepreneurship of society, entrepreneurs, and science will be essential in this area. This will require a substantial increase in State
investment expenditures in the development of scientific and research infrastructure and the creation of a friendly financial and insurance infrastructure for entities undertaking innovative projects. In addition, it will be necessary to raise the awareness of entrepreneurs in the field of protection of industrial property and related benefits.

*Opening up to third countries

A characteristic feature of the Polish economy is a strong dependence on EU economies. Although the close cooperation of Poland with the EU is a natural phenomenon, it carries some risk as well. As a result, the growth rate in GDP and trade depend on the economic situation in the EU. Such a dependence is well illustrated by the
crisis in year 2009, when the economic recession in the EU translated into a slowdown in GDP in Poland and a decrease in exports. Thus, regardless of the importance of EU countries, it is primordial to strengthen ties with third countries as well. The first step in this process would be to increase the expansion of Polish enterprises to these countries (currently, the share of non-EU countries in Polish exports is only 20%). Of course, due to the distance, cultural differences and often high volatility of regulations, such projects are not easy to implement and carry a high risk of failure. That is why State and foreign branches’ support is necessary here, especially in the form of financial instruments and accurate information on the conditions of conducting economic activities. Diversification of geographical directions of exports is crucial because in the long term dynamically growing exports to the EU are hard to maintain. The EU market is indeed large, and its consumers are relatively wealthy, but its absorption will not grow indefinitely. Simultaneously, Asian and African markets often show higher GDP growth and demand indicators than the EU and thy also seem to be more open to international cooperation.

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