Following the narrow victory of right-wing candidate Karol Nawrocki in Poland‘s presidential election, ING has said that the political polarisation in the country “lowers the chances of fiscal consolidation and may undermine companies’ attempts to improve their competitiveness”.
Rafal Benecki, chief economist, ING Poland was commenting following the win for Nawrocki, who is supported by the Law and Justice (PiS) party, in the second round of the election, with 50.89% of the vote.
Polarisation pitfalls
As Benecki noted, while the Polish zloty (PLN) may see limited further weakening following the result – with much of the market response priced in pre-election – the polarisation of society could have a bearing on Poland’s ability to tackle its fiscal imbalances.
“The election result reflects the high political polarisation of Polish society,” he explained. “This may lead to a rise in populist tendencies on both sides of the political spectrum.
“We expect the current coalition government to remain in place, but there is a risk that high fiscal imbalances and a lack of progress in reducing the excessive deficit will persist. Poland already has one of the highest fiscal deficits in the EU due to large defence outlays and a legacy of social spending. However, fiscal adjustment will be limited in the coming years.”
The economic growth outlook for the next two to three years remains “largely unchanged” in Poland, he added, with growth likely to be supported by savings, rising real incomes, and public investment.
Longer-term growth
“We are more concerned about the outlook for longer-term economic growth,” Benecki commented. “Further political polarisation may sustain the state of institutional uncertainty and undermine the willingness of Polish companies to invest. That may further hinder the necessary improvement of companies’ competitive positions, which have deteriorated significantly in recent years.
“Our research shows that the rise in labour costs – outpacing productivity – and energy prices, coupled with a significant intensification of international competition, especially from China, has worsened the competitive position of Polish companies. Polish businesses have been reluctant to invest, often because of unstable institutions and macroeconomic uncertainty. The intensification of internal political divisions may worsen that situation.”
As he added, going forward, Polish companies will need to “catch up with innovation, competitiveness, and international expansion.” Read more here.
