Poland Financial crisis

A. Vamsi Krishna
PG21021

1. Prior to the global financial crisis, the general economic situation. This section
emphasizes the large inflow of direct investments and rapid growth in productivity
from 2004 to 2007.
2. Structural factors related to Poland's economic development stage. The main factors
in this group are low reliance on business and consumer credit; the absence of high-
risk financial instruments (securities based on US subprime mortgages) in the banking
sector; and the Polish economy's relatively small external ties with a relatively large
domestic market.
3. The advantages of EU membership Since May 2004, Poland has benefited from a
large share of investments linked to EU transfers. It increased activity in sectors such
as building and construction while decreasing the number of layoffs.
4. Economic forces: - Despite Poland's desire to join the eurozone as soon as possible,
the country's own currency and floating exchange rates aided Polish exports during
the recession. During the period of high oil prices (2007-2008), a strong Polish
currency prevented the economy from increasing production costs and made imports
cheaper. Later zloty depreciation (2008-2009) made export goods more competitive
on international markets, preventing Polish exports from declining. Another factor in
this group is the absence of any special government stimulus programs.
5. The global economic crisis that lasted from 2007 to 2009 did not spare the Polish
economy. However, it was much milder than in many other countries, allowing
Poland to avoid a "technical recession," which is typically defined as a two-quarter or
longer decline in real GDP. Despite this, the annual GDP growth rate has dropped
significantly, from 6.8% in 2007 to 5.1% in 2008 and 1.8% in 2009.
6. a relatively low share of credit in financing business activity and consumption, • a
rapid improvement in the Polish economy's competitiveness in the period preceding
the 2007-2009 crisis, • a relatively low level of economic openness, • a flexible
exchange rate, • an inflow of funds from the European Union, • a large share of the
shadow economy, and • the government's reluctance to create a special economic
stimulus package and even greater reluctance to
7. The Polish economy's relatively good performance during the global recession2007-
2009 was the result of a confluence of many factors. The reasons presented above
represent only one point of view and do not include all of the Polish economy's
strengths and weaknesses, as well as the actions taken to stabilize it. the central bank's
monetary policy. I emphasized the characteristics of the Polish economy at the time
that I considered essential for sustaining growth in the face of global turbulence.
Some of the factors discussed are in fact negative and demonstrate the weakness of
the Polish economic system. This group includes a large share of the shadow
economy, the Polish economy's low level of openness, and the relatively small share
of bank credits in financing economic activity. These characteristics are typical of
post-Communist, young, and developing economies attempting to catch up with
 developed economies. During the recession, however, these characteristics reduced
Poland's susceptibility to an external shock in the form of the previous global crisis
and had a stabilizing effect on economic growth.
8. The Polish economy's undeniable assets include a dynamic increase in
competitiveness and work efficiency, though, without external financing in the form
of funds from the European Union and direct foreign investment, the improvement in
competitiveness would likely be much more moderate. The Polish currency's flexible
exchange rate also had an impact on price competitiveness. None of the
aforementioned factors could have stabilized the economy on its own. Many of them
helped each other, providing a positive impetus to sustain growth. The significant
share of the shadow economy had a stabilizing effect on household incomes,
providing non-taxed income to families and stabilizing consumption. The inflow of
EU funds, which created additional demand for work and stabilized employment, also
contributed to the increase in household incomes. The rise in competitiveness,
particularly in work efficiency, contributed to wage increases, while the exchange rate
allowed households to spend less during periods of rising commodity prices and save
more, stabilizing consumption during periods of economic downturn and decline in
real income. Similarly, many factors contributed to lower company operating costs.
Because of the zloty's appreciation, it was possible to import goods at lower prices
and to offer competitive prices on global markets during its depreciation. Productivity
growth contributed to lower production costs. Higher efficiency was associated with
an increase in direct foreign investment and EU funds. The infrastructure investments
made with EU funds reduced the costs of transportation and communication.
9. A variety of factors contributed to the economy's increased resistance to external
shocks. The sudden collapse of demand in the economy's environment was less severe
than in the case of economies that rely heavily on exports due to its small degree of
openness to international trade. The banking sector's condition was not harmed by the
relatively low share of credit in financing business activity. Membership in the EU
increased the credibility of the Polish economy, while the government's unwillingness
to build anti-crisis packages induced fears among market participants about the actual
state of the economy and forced companies to take efficiency improvement measures
to mitigate the effects of the global economic collapse.