ECONOMY: A phoenix from the ashes – yet again 22 strongly


Poland is one of Europe’s great survivors. Lying as it does on the political and ideological fault- line between West and East, it has frequently been reduced to rubble, invaded and subjected to totalitarian dictatorships of both Right and Leſt. And yet, today, it is the sixth largest economy in Europe – a huge achievement for a country that was considered a basket case even by the standards of the former eastern bloc. It has also bounced back from the


current


recession, with growth in the 3-4% bracket – much better than most other EU countries. In fact, Poland was scarcely ruffled by the economic events that saw growth in neighbouring countries like Hungary crash through the floor. This economic strength is to a


large extent due to the country’s strong


economic links with


Germany – a country with which Poland has had strong ties over the centuries, though not always for the right reasons – and, to a lesser extent, Scandinavia. German


and Swedish industrialists have long viewed Poland as a low- cost manufacturing centre, with the keen labour costs usually associated with China but without the attenuated transport links. Goods coming off the production line in Poznan could be on the shop shelves in Hanover the next morning. Large chunks of many ‘German’ cars and other vehicles are in fact sourced and assembled in Poland and a good proportion of Ikea’s goods are also made there. Large distribution centres for the likes of Amazon have also sprung up across the country. Poland has lately been one of


the chief beneficiaries of the trend to ‘near shoring’ as Chinese labour costs have risen and shippers become increasingly dissatisfied with slow steaming and rising seafreight charges. Not surprisingly, Germany


accounts for around a quarter of Poland’s foreign trade. But foreign investment, rather than trade, is the major strength of the Polish economy – it actually trades less, as


a proportion of its gross domestic product, than most other Central and Eastern European countries. Moreover, exports


of fruits


and vegetables to Russia fell dramatically following a politically motivated ban in the wake of the Ukraine crisis. There have been losers in this


economic renaissance, however. Much of Poland’s heavy industry has disappeared, just as it has in the UK and other parts of the West. With the constant search for low labour costs, many of the jobs created as the economy was fully liberalised have been low-paid and not particularly highly-skilled. This explains the large number of Poles living and working in other parts of the EU, including the towns and cities of the UK – one of the greatest European diasporas of recent times. Elsewhere in the eastern/central region,


Europe the economic


outlook is generally less rosy, and patchy at best. The Czech Republic’s economy remains weak although there are signs of


an export-led recovery. Although historically one of central Europe’s major industrial regions, the Czech Republic is also pinning its hopes on the service sector rather than manufacturing per se. Although the country was in


the vanguard of post-Communist privatisation and deregulation in the 1990s and early 2000s, there is a feeling now that it has shrugged off the decades of government regulation of industry and retailing less readily than Poland, and many feel that this is hindering its economic renaissance. Nevertheless, the Washington- based Heritage Foundation puts the country at 26 in its Index of Economic Freedom (and 15th out of 43 countries in western and eastern Europe) adding that its overall score has improved lately with important gains in areas such as investment, and trade. Over the 20-year history of the Index, the Czech Republic has steadily enhanced its economic freedom to advance to the ranks of “mostly free” economies. Slovakia, the Czech Republic’s


partner in then Czechoslovakia before the ‘Velvet Divorce’ that followed the ‘Velvet Revolution’ at the end of the 1980s, does somewhat less well in the Index, being ranked at 57 worldwide and 26 in the European regional ranking. Slovakia’s legal and regulatory systems can be a challenge for foreign investors to navigate, it says. While Slovakia was,


aſter


independence from the Czech Republic in 1993, one of Europe’s most attractive destinations for foreign investment, the pace of reform slowed significantly in the 1990s and the country has also been hit by political corruption in the last few years. However, since the elections in 2012, growth in the automotive and agricultural sectors have boosted the economy, allowing the country to make some headway against the general slowdown in much of the rest of the EU.


com, the


According to Focus-Economics. Slovakian


economy


expanded 2.6% in the second quarter of the year, mainly driven by strong investment and public spending, though exports were sluggish due to the slowdown in the Eurozone. To try and keep things moving along, the government recently put in a number of anti- austerity measures to boost household consumption such as an increase in the minimum wage and higher pensions.


For Hungary, the OECD says


that the country exited recession in early 2013, but predicts only a modest recovery. Investment is weak and structural reforms will need to be tackled to eradicate high unemployment. Hungary suffered badly early in the Great Recession and it still has a high level of foreign debt. More encouragingly, interest


rates have been cut and there is a scheme to encourage lending to small and medium-sized firms. While central European


countries like Hungary do look mainly westwards, Russia’s economic and political woes and the meltdown of the Rouble in December will have an effect on the still significant number of companies in the region that do business there. And when the Rouble fell sharply in mid- December, there was a knock-on effect on the Hungarian Forint. Romania’s days as the ‘Tiger


of the East’ may be over, but it is still managing quite respectable economic growth, of around 2-3% or more, considerably better than countries such as France or Italy are likely to achieve in the immediate future. The World Bank praised


its “prudent macroeconomic management” which had enabled a quick recovery from the global financial crisis. Economic activity is being driven by the gradual improvement in domestic demand and by exports, mainly to the EU. The country saw considerable


foreign investment in its manufacturing base in the earlier years of the century, in sectors such as automotive,


electronics and


pharmaceuticals, and this seems to have stood it in good stead. Rural poverty is still an issue, though, and agriculture is still underdeveloped. Despite having the highest proportion of its population living in the countryside of all EU countries (45%), Romania is importing an increasing proportion of its food needs, the OECD adds. According to the Economist, benefited from


Bulgaria has


neighbouring Greece’s economic woes – many residents and businesses have relocated across the border in the former eastern- bloc state to escape higher taxes and austerity. Nevertheless, the European Commission warns that growth is expected to remain muted, falling from 1.2% in 2014 to 0.6% in 2015 and 1% in 2016 as domestic demand weakens. But it does expect exports to resume


to domestic demand,


Issue 1 2015 - Freight Business Journal


///EASTERN EUROPE


growing at a moderate pace in 2015/16, sustained by the mild recovery in the EU and elsewhere. In the Baltics, Lithuania’s economy continues


grow


at a healthy pace supported by


says


the country’s national bank. Employment, and real wages are growing while interest rates are low, although it also notes that growth in domestic demand is gradually losing steam. The bank adds that export


developments “have not been worse than expected thus far.” While, as expected, import restrictions imposed by Russia on milk, meat, fruit and vegetables in August dealt a heavy blow to exports of food from Lithuania to Russia, which fell by half in two months, this was partly offset by a sudden pick up in Russia- bound exports of certain non-food products early in summer. The bank notes though that “there are substantial risks that this sudden spike may be short-lived and the exports of these goods may fall back to their previous level wiping out any gains.” Worries over slowing exports


also extend to the Euro area, now Lithuania’s top foreign trade partners. Index Mundi describes Latvia


as “a small, open economy” whose exports contributing nearly a third of GDP. With its geographical location, transit services are highly- developed, along with timber and wood-processing, agriculture and food products, and manufacturing of machinery and electronics industries. But it notes also that “corruption


continues to be an impediment to attracting foreign direct investment and a low birth rate and decreasing population are major challenges to its long-term economic vitality.” For Estonia, another country


badly hit by the credit crunch, the Economist predicts that the Government


will continue to


implement austerity policies. It too will be affected by a slowdown in exports to Russia and a predicted drop-off in transit trade, but prospects for exports to another key market, Sweden, are much better. But Bloomburg adds that the


country’s economy unexpectedly grew in the last quarter. Gross domestic product increased 2.2% from a year earlier in the second quarter of 2014 aſter a 1.4% decline in the previous three months, buoyed partly by higher timber production.


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