Prospects for development of Polish economy – OECD report

The presentation of the OECD report entitled “POLAND 2025” took place on 4 February 2025. This event seems to have been so important, I mean the report itself as well as the seminar organised on the occasion of its publication at the SGH Warsaw School of Economics, that it is worth formulating the most important conclusions about the Polish economy and the prospects for its development in the short, medium and long term.

It is a truism to say that the second decade of the 21st century was an unprecedented period in the modern history of Poland. The average annual real economic growth rate in our country in the years 2009–2014 (i.e. at the time when the global economy was struggling with the global financial crisis) reached 2.9%; and in the years 2015–2019 as much as 4.5%. It is primarily thanks to this decade that Poland managed to significantly reduce the development gap, measured by the ratio of Polish GDP per capita calculated in accordance with purchasing power parity (PSN) in relation to the EU average, by more than 30 percentage points (in 2004 it was only 50.1% of the EU average, while at the end of 2023 it was already 80.2% of the EU average). Such a fast growth rate of the Polish economy in relation to the EU average allows some economists from the Czech Republic and Hungary to formulate theses about the “Polish economic miracle” (an author of this text heard such statements made during a scientific seminar in Budapest), which occurred in 2010–2020. And although we were far from the growth rate characteristic of the post-war economy of the Federal Republic of Germany (according to the data provided by Norman Davies, in the years 1948–1963 the average annual GDP growth in West Germany came up to 7.6%), it is hard not to notice the impressive growth dynamics characteristic of Poland after the accession of our country to the European Communities (for comparison, the average – population-weighted – economic growth rate for 11 post-socialist countries, which joined the EU, was between 2004 and 2023 above half a percentage point, lower than that recorded in Poland and amounted to 3.2%).

However, the question arises as to how this impressive dynamics can be sustained in the medium and long term. Is it really the only probable scenario, outlined in a recent press interview given by Minister of Finance Andrzej Domański, in which Poland will “catch up” with the EU average before 2035, i.e. we will reach the average level of GDP per capita in the EU according to the PSN and we will ceaselessly continue to grow, up to the values characteristic of our western neighbour. Or rather, on the contrary, we must accept the fact that, as one of the Bible books picturesquely puts it, “(after the fat years) there shall come seven years of famine, and they shall forget that there was great abundance in the land of Egypt, and the famine shall consume the earth” (Genesis 41:30). An attempt to answer this question is extremely difficult, not only because, according to the words attributed to the Danish physicist Niels Bohr – “making predictions is difficult, especially if they concern the future”, but above all because of the subject matter such predictions are related to. A physicist has the comfort of being able to authoritatively state that a metal ball subjected to high temperature will increase its volume. This is an effect independent of what the ball might think about it, as well as of the attitude of the experimenter himself. It is different with economic phenomena. Sometimes, the very formulation of a forecast affects economic entities in such a way that the probability of its materialisation decreases rapidly. On the other hand, inflationary phenomena are very often referred to as a self-fulfilling prophecy (although the impact of inflation expectations on the dynamics of price growth is, of course, a much more complicated phenomenon). In fact, forecasts are very often formulated precisely to prevent the worst scenario indicated in them from materialising. They are intended, through their alarmist tone, to trigger a change in, for example, economic policy in such a way as to avoid the threats described in the forecast. In addition, the impact of external conditions on the probability of a specific path of events occurring in a specific country is extremely high in the world described by economics, even crucial. A mission impossible award should be given to those who, already after Donald Trump had won the presidential election in the USA, were able to outline the scenario we are witnessing today. And to those who can predict what world order that will emerge after the end of the armed conflict in Ukraine may eventually be like. Will there be a customs war between the EU and the United States? What position will China take in this dispute? All these questions, which cannot be explicitly answered at the moment, concern the conditions which will have a decisive impact on the economic growth rate in Poland over the next 5–10 years.

However, it would be wrong to conclude that in connection with the relationships outlined above, it is not worth formulating any forecasts as it is impossible to predict the course of changes in the economy in a horizon longer than one or two years. On the contrary, although it is impossible to determine the rate of economic growth in Poland in 2030, it is necessary to point to the factors reducing the long-term rate of economic growth in Poland, the removal of which will help increase the probability of materialisation of the scenario outlined by Minister Domański or the scientific team whose proud member is one of the authors of this text. So, what is the biggest obstacle to maintaining or even increasing the dynamics of economic growth in Poland in the short, medium and long term?

The answer to this question is relatively simple on the one hand, and extremely difficult on the other (if we expect the answer to be transformed into a feasible political programme). Simple because economists generally agree that in the short term the most important thing is to maintain a sufficiently restrictive monetary policy by the central bank, which will allow to reduce the inflation rate relatively quickly to the level determined by the inflation target), and on the other hand, fiscal consolidation, which can reduce the size of the deficit of the public finance sector, which, both in nominal and real terms, remains at a historically high level in Poland. These were the conclusions of the OECD report cited at the beginning. The economists responsible for its preparation point to the need to rethink the rules for granting transfers to households with children (to put it bluntly, they postulate the introduction of a property criterion under the “Family 800+” and “Active Parent” programmes), to consider an increase in taxes imposed on real estate and those related to the emission of environmentally harmful substances, as well as to gradually shift the retirement age women, so as to bring it relatively quickly up to the limit set for men. Having read this, it is easy to understand why, although these recipes seem quite obvious, their implementation may simply turn out to be impossible. Or at least impossible until there is a crisis in Poland that will question the current path of development, which can be reduced to a catchy slogan promoted by the current ruling coalition during the election campaign – and as one can think supported by candidate Rafał Trzaskowski during the presidential campaign – “nothing that has been given will be taken away”.

And here we come to the heart of the problems affecting the Polish economy. Well, the possibilities of shaping economic policy are a function of the patchwork model of capitalism, i.e. the institutional architecture (institutional order) existing in Poland and in other post-socialist countries which joined the EU. It is made up of three dimensions:

• the rules of conduct in force in society, i.e. codified laws (formal institutions) and dominant patterns of values and norms of behaviour of economic and social entities (informal institutions),
• the attitude of these entities to the existing rules, i.e. the degree of acceptance of existing formal and informal institutions or, on the contrary, the degree of involvement in activities aimed at changing them,
• the way in which existing formal rules are enforced.

The assessment of how the model of capitalism is able to generate a competitive advantage, understood, in a certain simplification, as the ability to achieve stable and sustainable economic growth translating into increased standard of living of citizens and their internal and external security, is based in the medium and long term primarily on its “responsiveness” (the ability to adapt to changing conditions of development, especially to cope with the growing multi-crisis), the ability to “anticipate” development opportunities, as well as the ability the system to learn and self-correct (institutional memory). The Polish model of capitalism unfortunately fails to cope with any of these three dimensions, which means that it is in fact incapable of initiating changes in the pattern of development, including changes to the existing model of international specialisation and of improving competitiveness (e.g. by increasing the innovation capacity), and avoiding the middle income trap and the transition from the (semi)periphery to the centre.

Thus, using the Solow–Swan model (exogenous growth model) as a kind of signpost (by the way, the use of endogenous models will not fundamentally change anything here), one of the most important challenges that the Polish economy must cope with in the medium and long term is demographic issues. The fertility rate in 2024 in our country was 1.12, which means the lowest value in the modern history of Poland (next to Spain, it is the worst result in the EU). To make matters worse, it seems that we are inevitably heading towards the countries of South-East Asia (South Korea, Singapore, Thailand or Vietnam), where the value of this indicator is below unity (in order to maintain the replacement of generations, it would have to be at the level of about 2.1). And although everyone is aware of this, this issue has not become a subject of debate in our country. Indeed, there are many reasons for this state of affairs, and the most important challenge is not supposed so much to reverse but to stop cultural changes (informal institutions!), which, according to demographers, may be the most important factor behind the decline in fertility in the long term. Nevertheless, the demographic situation of Poland could improve if, on the one hand, we implemented an active labour market policy, activating people who remain outside the workforce and reducing the rate of decline in the number of economically active people, e.g. by extending the period of women’s professional activity up to the age of 65), and on the other hand, if we implemented a programme encouraging foreigners to come to Poland (similar to the American or Australian visa lottery). Is there anything moving on in these areas? Indeed, we are discussing the shortening of the period of men’s professional activity (the “reversed” equalisation of the retirement age for women and men, which was mentioned by Minister Agnieszka Dziemianowicz-Bąk), a general reduction in working time and the complete closure of borders to migration, the victim of which is, for example, the SGH Warsaw School of Economics, which encounters a decreasing stream of foreign students who would like to study at our University. So, the solutions that are completely counterproductive to those required by the Polish economy. Everything, of course, in the name of winning the next election, because from the point of view of politicians, this is the only thing that matters,

Following the conclusions formulated on the basis of this growth model, let’s move on from the rate of demographic growth to the increases in productivity driven mostly by technological progress i.e. to the issue of innovation of the Polish economy. Although it is hard to believe, it is even worse in this area. The basis for assessing the ability to initiate changes in the Polish model of capitalism may boils down to four indicators used for the purposes of the European Innovation Scoreboard, which show the share of expenditure on research and development in GDP both in total and broken down into the public and enterprise sectors, as well as the share of direct expenditure and tax support in this sphere in the total expenditure of the public sector. On the other hand, the results of the activities of the institutions constituting the patchwork model of capitalism in Poland, creating premises for changing the current pattern of international specialisation and improving competitiveness through the increased capacity to innovate, can be assessed using four indicators taken from the same source. They illustrate, respectively: the relative (in relation to GDP) number of patents filed with the European Patent Office (EPO), the number of new technologies in the area of environmental protection in relation to all technologies developed in the country, the share of goods that carry the most modern technologies in exports and the relation of exports of knowledge-based services to the total exports of services. Even against the background of average values in the EU (which, let’s admit, is not the leader of technological change), Poland remains one of those countries where the situation looked particularly unfavourable, also compared to other representatives of the patchwork model or also the Mediterranean model countries that are lagging behind the average.

In the OECD report POLAND 2025, referred to at the beginning, climate policy occupies a significant place, to which one of the four main chapters of this study is devoted, using the term “green transformation” in its title. At this point, we do not question the need for action in this area, which has been credibly justified by scientific evidence clearly indicating that by reducing the scale of global warming, we have a chance – as a global community – to avoid or reduce its negative effects, also in terms of costs (which was comprehensively presented almost 20 years ago in the pioneering Stern Report The Economics of Climate Change, as well as in many later studies). This evidence also indicates that the need for action is becoming more and more urgent, hence it is difficult to disagree with the recommendations of the authors of the OECD report that Poland should intensify and accelerate activities in this area. It is worth adding, however, that such a recommendation is in a sense universal and could be included in reports for most countries, not only those associated in the OECD (by the way, such a conclusion can also be drawn on the basis of the data presented in the report).

It seems that the stereotype of perceiving Poland as a significant emitter of greenhouse gases from a high-emission economy should already be somewhat verified. It should be recalled that Poland – with one of the highest share of fossil fuels (mainly hard coal and lignite) in the energy mix in the EU – had one of the most demanding starting levels in the implementation of the decarbonisation policy, and as a consequence must face the most far-reaching expectations in the context of the Community’s joint effort and the growing level of ambition in this area. At this point, the logic and meaning of the principle of “common but differentiated responsibility” adopted in the United Nations Framework Convention on Climate Change can be recalled, which is also practically applicable in the division of efforts in the EU, hence the simple translation of ambitious EU goals of reducing emissions, increasing the share of renewable energy sources or improving energy efficiency into the national level – as it was put in the OECD report – seems unjustified.

Let us then try to complete the picture outlined in the OECD report. In the period from 1990 to 2023, Poland managed to reduce greenhouse gas emissions from domestic sources by approx. 40%, while real GDP (in constant prices) increased by more than 250%, which shows the effect of a kind of decoupling, i.e. breaking the correlation between economic growth and greenhouse gas emissions. Part of this effect is a gradual but consistent phasing out of coal, whose share in electricity generation has decreased from over 90% in 2000 to just over 50% in 2024 (at the same time, the share of renewable sources is already close to 30%).

It is also worth paying attention to the type of indicators we use to measure and communicate these changes. One of the most commonly used measures of the emission intensity of economies is to show the emissions from the territory of a given country per capita. In this approach, Poland, with an indicator of 8.9 tCO_2eq.¹per capita does not compare favourably with the EU average of 5.96 tCO_2eq. per capita. However, this indicator does not illustrate the true level of emissions for which we are responsible, as it does not take into account the emissions that we “import”. This real level of responsibility is better expressed by the emission rate estimated on the basis of consumption or production (consumption/production based emission), commonly known as the carbon footprint, and in this case we do not differ significantly from the EU average: 10.79 tCO_2eq. per capita for Poland and 10.65 tCO_2eq. per capita in the EU. It is worth noting that when taking into account international flows, including “hidden” flows of emissions embedded in imported goods, the EU’s share of global warming responsibility is slightly higher than measured by traditional indicators.

Of course, the data and comparisons presented above cannot justify calls for a reduction in decarbonisation efforts at both EU and national level. As an EU member state, Poland is a co-author of the Community decarbonisation policy, including its ambitious targets, such as a 55% reduction in emissions in 2030 or net climate neutrality in the mid-21st century, and is aware of the scale of the effort, including the costs. Negotiations and disputes should be more about implementation details and ironing out the imperfections of solutions rather than changing fundamental decisions. Even Mario Draghi’s report, often cited by opponents of the ambitious climate policy, which notes the growing investment gap between the EU and the US and postulates the need for more effective stimulation of economic growth, points to action in three areas: the development of innovative solutions on the basis of mature technologies, investments in security and Europe’s lower dependence on global partners and linking the development of European industry with the achievement of climate goals. The notion that moving away from an ambitious climate policy as a way to improve the EU’s global competitiveness also seems misplaced in the context of the latest reports from China – currently the largest emitter of greenhouse gases – which has announced that it intends to peak emissions within the next decade and achieve climate neutrality by 2060. It has been the world’s largest investor in renewable energy for more than a decade, outstripping all other countries in the rankings. It seems, then, that China is following a path similar to that set out in the European Union, confirming that this green transformation is not only a way to avoid negative environmental impacts but also a way to stimulate growth and strenghten its competitive position not only in the long term.

The aforementioned conditions confirm the hypothesis that, in the context of patchwork capitalism, there is a kind of “institutional short-sightedness syndrome”, which means a preference for relatively easy to achieve short- and medium-term goals (quantitative changes) at the expense of long-term goals (qualitative changes). Without overcoming this extremely dangerous phenomenon, it will be impossible to achieve long-term goals such as changing the (semi-) peripheral status of Poland, understood as being permanently stuck at the intermediate stages of global value creation chains, increasing the share of products carrying the latest technologies in GDP and exports, as well as limiting the negative effects of demographic change through a reasonable migration policy, active labour market policy and productivity growth through reforms of the education system and knowledge creation. Obviously, these goals are absolutely crucial from the point of view of our country’s ability to avoid the trap of medium development and maintain a high rate of economic growth in the long term.  

Doctor PIOTR MASZCZYK, Head of Macroeconomics and Public Economics Unit, Collegium of World Economy, SGH
 

Doctor MACIEJ CYGLER, Assistant Professor at the Institute of International Economics, Collegium of World Economy, SGH
 

¹ Carbon dioxide equivalent, i.e. the conversion of emissions of greenhouse gases other than CO2 and expressing them with a single measure.