Since the turning point of 1989, Poland has undergone great political, social and economic changes... Ukraine has many of the components of a major European economy - rich farmlands, a well-developed industrial base, highly trained labour, and a good education system...

Poland

General information on the polish economy

Since the turning point of 1989, Poland has undergone great political, social and economic changes. The introduction of democratic structures, the shift from a command economy to the free market and wide-ranging systemic reforms are all achievements of which Poles can be proud.

The start of the economic reform process was extremely tough, though few in Poland doubted how the new economic system should look. Communist rule had over many years brought the country - and an increasingly impoverished society - to its knees. During the period of transformation, the Polish economy was still therefore in an awful state and radical reform was selected as the only solution to save it. To this day, Polish opinion is still divided as to the effects of this decision. But there is little doubt about one thing: without such reforms the costs of the transformation would have been significantly higher and Poland would not have come as far down the road towards the EU as it has.

In January 1990, state-controlled prices were lifted and from then on food and trade margins were largely shaped by market forces. The market reform plan assumed that prices would rise on average by 50%. In fact, they rose at the time by 78% and some goods and services by even as much as 600%. But this was a first step towards prices as they operate in developed capitalist economies. Furthermore, demand and supply were again activated.

There was also a revolution in the liberalisation of international trade. The zloty became convertible to other currencies and internal convertibility was also established, providing another platform for dynamic economic growth. New markets in countries that had been treated not so long before as ideological as well as economic enemies were opened up to Polish companies. The EU and USA became the key directions in which Polish goods were exported.

The Leszek Balcerowicz Plan, its author being Finance Minister in the early 1990s, liberalised domestic prices and led to rising imports, a tightening of enterprises’ pay structures and financial policy in relation to enterprises, the introduction of interest rates above the rate of inflation, the stabilisation of the zloty against the dollar and the introduction of zloty exchangeability. The Polish economy stabilised and opened up to the world.

But liberalisation and stabilisation would not have brought any long-term effects and an efficient market system if not for structural reforms. Banking and lending policies were reformed, while newly reshaped ownership relations, independent enterprises and strengthened domestic competition all had massive impacts. Capital and labour markets also started to operate in Poland.


Consistently implemented economic policies led Poland in a relatively short time on to the list of the most dynamically developing economies in Europe. Already by the mid-1990s Poland had become known as the ‘flying Eagle of Europe’ and the ‘Tiger of Europe.’

One fundamental priority of successive governments has been economic growth. This is not only a condition of improving Poles’ standards of living, but is also a foundation for realising the strategic goal of catching up with the developed economies of Europe and the rest of the world. The means of achieving this goal is EU membership. To this end all main political forces in Poland are agreed, although there are differences, of course, on how to achieve it.

The reforms of the transition period and subsequent hard and consistent monetary policy gave the Polish economy solid foundations: a strong currency and permanently falling inflation (currently at about 1%). The implementation of systemic reforms and responsible government policies, as well as improved global competitiveness, mean that expectations of a return to fast-track economic growth are justified.

Source: http://poland.gov.pl

The most important facts of 2006

Polish economy is on the path of sustained high economic growth. In the Q2 2006 GDP grew by 5,5% yoy compared to 5,2% in the Q1. The main factor behind the acceleration was investments, which, beside households consumption, is becoming the most important component of GDP expansion. Gross fixed capital formation increased by 14,4% in the Q2 2006, which was the highest growth of this category since Q1 1998. Increasing investment demand along with high growth of consumer demand and still positive contribution of net exports to GDP (0,4 pp. in Q2 2006) indicate bright future for economic development.Continuation of high growth of industry production and retail sales (in July 2006 14,3% yoy and 10,8% yoy respectively) allow to expect that real growth of GDP in the whole 2006 will amount to 5,2% compared with 3,4% increase in 2005.

The lowest inflation in the EU
The recent data on inflation acknowledge the lack of inflationary pressure in our economy. Average inflation rate is estimated at 1.1% in 2006. Although annual CPI grew in July in comparison to the previous month, but this increase was mainly caused by one-off effects. Smaller then expected was the drop of food prices, because of weaker harvest caused among others by this year’s drought. In the course of time we notice the acceleration of annual PPI, what is mainly connected with the increase of raw materials prices (oil, metals) on the world markets.

Fundamentals of Polish economy supports zloty appreciation
Since May 2004 Polish zloty has been appreciating by some 15% against EUR and about 18% against USD. The zloty appreciation resulted mainly from strong Polish economy fundamentals (low inflation, relatively high interest rates, buoyant growth of output).

NBP’s interest rates on hold at least until the year-end
Reference rate of National Bank of Poland stays at 4.0%. The positive inflation outlook resulted in two NBP interest rates cuts in the Q1 2006 (by 50 bp in total). Since April 2006 MPC hasn’t changed policy parameters as the probability of inflation running, in the monetary policy transmission horizon,above the level assessed in the April inflation projection has increased.

Central budget deficit under control
In July 2006 state budget revenue amounted to 109,8bln PLN, which means 56,2% of total budget revenue planed in 2006 Budget Act and current execution of state budget revenue plan shows that there is no risk of exceeding the state budget deficit planned for 2006. In 2006 and 2007 nominal deficit anchor of 30 bn PLN in the state budget is to be enforced. This policy measure along with high economic growth shall lead to fall in the ratio of deficit to GDP and facilitate fulfilling Maastricht criteria within few years horizon.

Significant labour market improvement
Although Poland’s unemployment rate is the highest one in the EU, significant improvement has been achieved as far as the situation in the labour market is concerned. Unemployment rate that was 20% just 3 years ago has been reduced to below 16%. Stable fall in unemployment rate of some 1.5 p.p. a year has been observed in recent years and it is very likely that unemployment rate in 2009 will fall slightly above 12%. After 6 years of fall in employment in the enterprise sector, employment started recovering two years ago and currently grows at about 3% a year.

Foreign trade among major drivers of growth
After temporary worsening of current account in 2004 to 4.2% of GDP, which resulted from a sudden slippage of income balance due to high foreign income on FDI, external position improved markedly in 2005 and current account deficit shrank to 1.4% of GDP. Trade balance has been improving constantly since 1999 and in 2005 narrowed to 0.9% of GDP. As far as medium term prospects are concerned, external position is forecast to remain sound and shall not pose any threat to macroeconomic stability of Polish economy.

Source: http://www.mf.gov.pl

Ukraine

General information on the ukrainian economy

Ukraine has many of the components of a major European economy - rich farmlands, a well-developed industrial base, highly trained labour, and a good education system. At present, however, the economy remains in poor condition. While Ukraine registered positive economic growth starting from 2000, this came on the heels of eight straight years of sharp economic decline. As a result, the standards of living for most citizens has declined more than 50% since the early 1990s, leading to a relatively high poverty rates. The macroeconomy is stable, with the hyperinflation of earlier in the decade having been tamed. Ukraine's currency, the hryvnia, was introduced in September 1996, and has remained fairly stable. The economy started growing in 2000, and growth has continued. GDP in 2000 showed strong export-based growth of 6% - the first growth since independence - and industrial production grew 12.9%. The economy continued to expand in 2001 as real GDP rose 9% and industrial output grew by over 14%. Growth of 4.6% in 2002 was more moderate, in part a reflection of faltering growth in the developed world. In general, growth has been undergirded by strong domestic demand, low inflation, and solid consumer and investor confidence. Growth was a sturdy 9.3% in 2003 and a remarkable 12% in 2004, despite a loss of momentum in needed economic reforms.

Ukraine is relatively rich in natural resources, particularly mineral deposits. Although oil reserves in the country are largely exhausted, it has other important energy sources, such as coal, natural gas, hydroelectricity and nuclear fuel raw materials.

Ukraine has a major ferrous metal industry, producing cast iron, steel and pipes. As of 2005, Ukraine was the world's seventh largest steel producer. Another important branch is country's chemical industry producing coke, mineral fertilizers and sulfuric acid. Manufactured goods include metallurgical equipment, diesel locomotives, tractors, automobiles, The country possesses a massive high-tech industrial base, including much of the former USSR's electronics, arms industry and space program. However, these fields are state-owned and underdeveloped in terms of business management.

Ukraine is a major producer of grain, sugar, meat and milk products.

Ukraine encourages foreign trade and investment. The parliament has approved a foreign investment law allowing Westerners to purchase businesses and property, to repatriate revenue and profits, and to receive compensation if the property is nationalized by a future government. However, complex laws and regulations, poor corporate governance, weak enforcement of contract law by courts, and corruption all continue to stymie large-scale foreign direct investment in Ukraine. While there is a functioning stock market, the lack of protection for shareholders' rights severely restricts portfolio investment activities. Total foreign direct investment in Ukraine is approximately $17.4 billion (17.4 G$) as of April 2006, which, at $371 per capita. Much reform is still needed, in order to stabilise the investment climate.

Most of Ukrainian trade is conducted with Russia and the European Union. An overcrowded world steel market threatens prospects for Ukraine's principal exports of non-agricultural goods such as ferrous metals and other steel products. Although exports of machinery and machine tools are on the rise, it is not clear if the rate of increase is large enough to make up for probable declines in steel exports, which today account for 46% of the country's overall exports.

Ukraine imports 90% of its oil and most of its natural gas. Russia ranks as Ukraine's principal supplier of oil, and Russian firms now own and/or operate the majority of Ukraine's refining capacity. Natural gas imports come from Russia - which delivers its own gas, as well as the gas from Turkmenistan. Instead, Ukraine is transporting Russian gas to EU through its well-developed gas pipelines system, being the Europe's vitally important gas transiter. Country's dependence on Russian gas supplies dramatically affects its economics and foreign policy, especially after the recent major gas dispute.

However, Ukraine is independent in its electricity supply, moreover, exporting it to both Russia and Eastern Europe. This is achieved through a wide use of atomic energy and hydroelectricity. The recent energy strategy intends gradual decreasing of gas- and oil-based generation in favor of nuclear power, as well as energy saving measures, shortening of industrial gas consuming. Reform of the still inefficient and opaque energy sector is a major objective of the International Monetary Fund (IMF) and World Bank programs with Ukraine.

The IMF approved a $2.2 billion Extended Fund Facility (EFF) with Ukraine in September 1998. In July 1999, the 3-year program was increased to $2.6 billion. Ukraine's failure to meet monetary targets and/or structural reform commitments caused the EFF to either be suspended or disbursements delayed on several occasions. The last EFF disbursement was made in September 2001. Ukraine met most monetary targets for the EFF disbursement due in early 2002; however, the tranche was not disbursed due to the accumulation of a large amount of VAT refund arrears to Ukrainian exporters which amounted to a hidden budget deficit. The EFF expired in September 2002, and the Ukrainian Government and IMF began discussions in October 2002 on the possibility and form of future programs.

In 1992, Ukraine became a member of the IMF and the World Bank. It is a member of the European Bank for Reconstruction and Development but not a member of the General Agreement on Tariffs and Trade/World Trade Organization. While Ukraine applied for WTO membership, its accession process was stalled for several years. In 2001, the government took steps to reinvigorate the process; however, there was less concrete progress in 2002. The WTO Working Party on Ukraine met in June 2002. The government's stated goal is to accede to the WTO by the end of 2006- February 2007. Currently, the only country yet blocking Ukraine's entry to the WTO is Kyrgyzstan.

A political crisis in the middle of 2006 was feared as a threat to economic and investment stability, however, despite the forecasts, the political situation has not scared the investors. The GDP has shown a good growth rate of 9% in July 2006, compared to July 2005. Industrial output has increased. Car sales soared, while the banking sector has expanded, thanks to the arrival of European banks.

Source: http://en.wikipedia.org