Why is the Polish economy emerging so strongly from the pandemic? A comparison with the United Kingdom
Poland managed to avoid the same level of economic damage suffered in other European countries during the pandemic. However, as Paweł Bukowski and Wojtek Paczos write, contrary to government claims about good management, it is luck, the GDP’s priority over health and restrictions focused more on personal freedoms than economic freedoms that explain why Poland has remained relatively unscathed until now.
In 2020, Poland’s GDP contracted “only” 3.5%, significantly less than the OECD average of 5.5%. In the UK, this figure was 9.9%. While unemployment rates have skyrocketed across Europe, Polish official figures have barely budged and are lowest in the EU according to the latest figures from Eurostat.
We have to keep in mind that the Polish economy was also functioning very well before the pandemic. According to the IMF’s World Economic Outlook of October 2019 forecast, it is expected to grow by 3.1% in 2020. However, the Polish economy falls to 6.6 percentage points below the growth figure expected is still a more moderate slowdown than in many other countries. For example, in the case of the Czech Republic it was 8.1 pp (from + 2.6% to -5.5%), for Hungary it was 8.3 pp (from + 3.3% to – 5%), the United Kingdom by 11.4 pp (from + 1.4% to – 10%), and Spain close to 13 pp (from + 1.8% to -11%).
Figure 1: GDP growth deficit in 2020 (2019 forecast vs 2021 estimate)
Source: Compiled by the authors.
While the Polish economy has clearly managed to manage the pandemic relatively well so far, the reasons are less clear. The country’s government was quick to claim the success of its various anti-crisis measures.
The reality, however, is that the Polish response to the economic fallout has been neither more innovative nor more generous than that of other countries. According to Eurostat, public expenditure increased by 9.1% of GDP in Poland between the first and third quarters of 2020, while the EU average during this period was 10.1%. Contrary to government claims, we believe that a relatively lax approach to economic foreclosure and a bit of pure luck are the main reasons for the relatively good performance of the Polish economy.
Get lucky in the first wave
By “pure luck” we mean all the factors which are beyond the direct control of politicians, but which nevertheless affected the transmission of the pandemic and the economic fortunes of the country. Poland has been “lucky” in three important respects: its semi-peripheral location and its geographic and economic structures. As we will explain, these factors markedly affect the trade-off between economics and public health.
Due to its semi-peripheral location, the first case of Covid-19 appeared in Poland relatively late, giving the government more time to prepare and implement a lockdown strategy. The first restrictions were introduced when the 7-day average of daily cases was only nine – instead of 674, as was the case in the UK. New IMF research suggests that early but tight lockdowns are the most effective in containing the spread of the virus. They are also (potentially) the least harmful to the economy because, if successful, they can be lifted faster.
Second, Poland’s geographic structure meant that the “natural” speed of transmission in Poland was slower than in the more densely populated Western European countries. In Poland, 40% of the population lives in the countryside, which considerably limits the number of daily contacts. The “living density” of the population in Poland is only 196 per inhabited square kilometer, compared to 531 in the United Kingdom.
Restrictions: when, what and how?
During the first wave of the spring 2020 pandemic, there was no statistically significant increase in the number of excess deaths (above the five-year average) in Poland and the economy was doing well. The policy of early and strict restrictions has bypassed the painful trade-off between health and the economy.
That changed dramatically during the second fall wave of the pandemic which peaked in November. The government then implemented a wait-and-see approach, introducing belated measures that ultimately proved to be less adequate. This can be interpreted as promoting the economy rather than health.
In the figure below, we modify the Oxford Covid-19 austerity index to show the composite measures most damaging to the economy. The original index is based on nine indicators rescaled to a value from 0 to 100, where 0 is the pre-pandemic situation and 100 represents the most stringent measures implemented in all categories. Our amendment includes six categories which, in our opinion, are the most damaging to the immediate economic situation.
Figure 2: The economic gravity index
Source: Own calculation based on the Oxford Covid-19 Government Response Tracker
The graph shows that Polish restrictions were tight in the first wave and then almost non-existent in the summer. The increase in restrictions in the fall, compared to the number of cases, is, in our opinion, very late.
In contrast, in the UK restrictions were kept high during the summer and the increases in restrictions in the fall were much more timely. This may have hurt the economy more, but also resulted in a much slower transmission during this second fall wave.
The difference, in part, can also be explained by a different approach to restricting economic and personal freedoms in each country. In the UK, for example, there were few limits for individuals: masks were never made compulsory outdoors, schools remained open for several months and – in the experience of authors – the application of the quarantine has been relatively lax. However, working from home was recommended for most of the year. During the lockdowns, the British could only buy non-essential goods online and had no access to any form of domestic services.
In contrast, in Poland, masks were made compulsory even on empty streets, schools were only fully open for six weeks and people in quarantine were regularly checked by police. However, remote work was only pushed hard for a few scattered weeks. For most of the past year, Poles could still go to a shopping mall or even visit a sauna.
Our intuition is that the Polish approach weighs less heavily on the economy, while the British approach is probably more effective in limiting the transmission of the virus. This is corroborated by data relating to the total number of deaths during the pandemic. We use a measure of “excess mortality” (number of deaths greater than the five-year average) because these data are free from potential differences in (erroneous) reporting and classification. The graph below shows that in the first wave of spring 2020, an early and tight lockdown in Poland resulted in virtually no excess deaths, while in the UK delayed restrictions resulted in excess mortality of more than 100%.
Then, however, the situation almost turned around in the second fall wave. Between March 2020 and March 2021, the UK lost nearly 121,000 additional lives, while Poland lost over 95,400. Compared to the country’s respective populations – with the UK being 80% more populous – Poland had a 42% higher excess per capita mortality. Almost all of the difference falls on the second wave.
Figure 3: Excess mortality during the Covid-19 pandemic in Poland and the United Kingdom
Source: Our world in data
Services are hurting, manufacturing is booming
In addition, the makeup of the Polish economy also makes it more resistant to foreclosure measures. In 2019, 27% of workers were employed in sectors that were then directly affected by the lockdown (such as hospitality or tourism), compared to 34% in the UK and 37% in Spain, according to Eurostat. Since a smaller part of the economy had to hibernate, the direct effect on GDP was less negative.
But there was also a second, indirect channel. Poland is the only large EU country to have a growing share of manufacturing industry in both employment and production. This kept more of the economy booming when the service sector had to be locked down. Also, thanks to this, the the country was able to benefit from the global evolution of consumption from services to durable goods induced by the pandemic.
Size matters too. A large internal market reinforces the positive effects of pro-business foreclosure and a resilient economic makeup. Smaller countries in the region, such as Hungary or Slovakia, are more dependent on the economic situation in the rest of Europe. The greater economic fallout in Germany or the UK will therefore lead to smaller economies more. Due to its size, Poland’s domestic economy could partly compensate for the loss of foreign demand.
Poland and the UK followed different paths during the first and second waves of COVID-19, offering a natural experience of how the shape and timing of lockdown policies can affect the economic downturn and containment virus. In addition, the sectoral composition of the economy and the geographic distribution of the population also play a crucial role.
Although the performance of the Polish economy during the pandemic appears surprisingly robust, we do not believe that it is the result of a thoughtful strategy. On the contrary, percentage points of GDP can never justify cost of nearly 100,000 additional deaths. A price which, as the first wave in Poland showed, was completely avoidable.
Note: This article was first published at Notes from Poland and is republished with permission. The article gives the point of view of the authors and not the position of EUROPP – European Politics and Policy or the London School of Economics. Featured Image Credit: European Council